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The impact of ‘never events’ on post-acute care

February 2, 2012
by Paula G. Sanders, Esq.
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Why hospitals are not the only providers who should worry

Post-acute providers, including nursing homes, assisted living facilities and continuing care retirement communities (CCRCs) need to prepare for the impact of Medicare and Medicaid policies that prohibit payment for so-called “never events.” The current Medicare payment policy for hospital never events has created risks for unassuming post-acute providers. Recent regulations that will allow states to apply Medicaid nonpayment policies for other provider preventable conditions likewise will pose potential issues for the unwary.

Since October 2008, Medicare has not paid hospitals for certain hospital-acquired conditions (HACs) that were not present on admission. HACs are defined as conditions that are high cost or high volume or both, result in the assignment of a case to a diagnosis-related (MS-DRG) group that has a higher payment when present as a secondary diagnosis, and could reasonably have been prevented through the application of evidence-based guidelines. The Centers for Medicare & Medicaid Services (CMS) has identified ten HACs and three surgical-related events through the National Coverage Determination (NCD) process for which Medicare payments will not be made if those conditions develop during a hospital inpatient stay and were not present on admission (POA).

Under the Medicare HAC program, the critical inquiry is whether the HAC was present on admission. The question, however, is not asked at the time that a patient presents to the emergency department or is put in a room for “observation,” but instead is assessed only when the patient is admitted to the hospital as an inpatient. As most post-acute providers are aware, some hospitals are placing patients in “observation” in excess of 24 hours, a process that has spawned at least one class action lawsuit and congressional hearings. While this practice has generated concerns related to beneficiary out-of-pocket expenses and the inability of an “observation” hospital stay to qualify as a three-day hospital stay for purposes of establishing eligibility for skilled nursing home Medicare Part A coverage, few have recognized the problems created for post-acute providers under the HAC nonpayment policy.


While the HAC POA analysis may seem at first blush to be both empirical and objective, it is misleading because of the timeframe in which it is performed. It is important for post-acute providers to understand that the POA analysis is performed only when the patient is admitted as an inpatient. A pressure ulcer or catheter-related UTI that may have developed while a patient was in an observation bed will be coded as present on admission, but in all likelihood, the medical record will show that the patient developed the condition prior to admission. The system is designed in such a way that it is presumed that the condition developed in the place from which the patient was transferred—be that home, a nursing facility or a CCRC and not the hospital emergency department or observation bed.  

Post-acute providers are advised to improve their documentation when transferring residents to a hospital. Transfer forms should include a skin assessment whenever feasible. A facility that has implemented a comprehensive wound prevention program, which identifies residents at risk for skin breakdown and provides appropriate interventions, may nonetheless find itself identified as the source of a decubitus ulcer never event that developed after transfer from the facility but prior to admission as a hospital inpatient.

There is an inherent inequity in a system that is time-sensitive yet ignores the “gap” period between when a resident leaves a nursing home and is subsequently admitted as an inpatient. The consequence of this system flaw is evident in the Office of Inspector General’s (OIG) “Work Plan for Fiscal Year 2012.” The OIG has identified HACs as a focus area for 2012. A review of the OIG HAC initiatives reveals that the focus will be on post-acute providers more than on hospitals. Consider the following:

OIG will review HACs coded as present on admission on hospital Medicare claims to determine which types of facilities, such as SNF or rehabilitation facilities, are most frequently transferring patients with certain diagnoses that were coded as being present when patients were admitted. OIG will also determine whether specific providers transferred a high number of patients to hospitals with POA diagnoses.

—OIG 2012 Work Plan, 1-4

Curiously, the review does not appear to ask whether the HACs that were coded as POA could have developed in a non-inpatient hospital setting. Indeed, the OIG will be reviewing hospitals’ use of observation services during outpatient visits only to assess the appropriateness of the services and their effect on Medicare beneficiaries’ out-of-pocket expenses for healthcare services, but not for contributing to the development of a POA condition.