One Day Stay Billing at BIDMC / CareGroup Hospitals Introduction In December 2007, the US Department of Justice announced a $26 million settlement with St. Joseph’s Hospital of Atlanta primarily related to inappropriate billing of outpatient visits as inpatient stays, often one day stays, during the years 2000 through 2005.1 One day stays have been an ongoing focus of regulatory scrutiny since 2000, when the Office of the Inspector General (OIG) questioned the reasonableness of Medicare inpatient hospital payments for beneficiaries discharged after spending only one day in a hospital.2 In many cases the OIG suggested that these stays were unnecessary admissions and instead should have been billed on an outpatient basis (i.e. outpatient observation), a billing distinction with significant financial implications for Medicare. In fiscal year 2005, thirty-nine percent of all Medicare admission denials nationally were for admissions with a length of stay of one day.3 One day stays also have significant implications for controlling the cost of health care. Treating patients in lower cost settings, such as on an outpatient basis, is an integral part of any cost control agenda. One-day stays are a particularly important area of focus as the distinction is largely one of billing and not of the setting or quality of care. On top of the compliance questions, one-day stay practices should be scrutinized for their effects on health care costs. For example, under Medicare payment rules, billing a short-stay as inpatient versus outpatient observation can raise payment rates from $1,000 to as much as $6,000.4 Beth Israel Deaconess Medical Center (BIDMC) has a higher one-day stay rate than St. Joseph’s based on Medicare’s Program for Evaluating Payment Patterns Electronic Report (PEPPER) measure. In fact, using the PEPPER methodology, of similarly sized hospitals (averaging at least 10,000 Medicare discharges per year), BIDMC has the highest percentage of one day stays in the country:

1 DOJ settlement announcement http://www.usdoj.gov/opa/pr/2007/December/07_civ_1029.html 2 Office of the Inspector General (OIG) Workplan 2000 http://oig.hhs.gov/reading/workplan/2000/workpl.pdf 3 PEPPER v17 guide July 2007. 4 Analysis of base payment rates and DSH/IME adjustments, see Section 4. See also “Financial Turnaround Continues” Presentation by CareGroup Healthcare System, dated May 21, 2004; filed with Nationally Recognized Municipal Securities Information Repositories on June 2, 2004

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Top 10 Hospitals

State

A: One Day Stay Rate [A = C / B]

B: Total Discharges

C: One Day Stays

Beth Israel Deaconess Medical Center MA 21.2% 67,365 14,306 Morton Plant Hospital FL 20.1% 70,024 14,057 Sarasota Memorial Hospital FL 20.1% 84,818 17,013 St. John’s Hospital IL 19.6% 62,832 12,342 St. Joseph’s Hospital of Atlanta GA 19.6% 66,652 13,053 Johns Hopkins Hospital5 MD 19.0% 69,133 13,163 Saint Mary’s Hospital MN 18.5% 113,876 21,107 Munroe Regional Medical Center FL 18.1% 81,924 14,848 University of Michigan Health Services MI 17.7% 62,951 11,133 University Health Services Inc. GA 17.6% 62,671 11,010 National Peer Rate (128) 13.2% 2000-2005, Medicare inpatients, hospitals averaging at last 10,000 discharges / year n = 128 hospitals. Source: Medicare Claims Data BIDMC and other subsidiaries of its parent organization, CareGroup, have the highest rates of one day stays in Massachusetts, and the highest in several diagnoses flagged by regulators. BIDMC also has a higher rate of one day stays as a percentage of all patients who enter through the emergency room, even after adjusting for the primary diagnoses of the patients. Notably, the financial implications of one day stay billing are particularly dramatic for BIDMC, perhaps as much as $5000 per case, because the facility receives significant Indirect Medical Education (IME) and Disproportionate Share Hospitals (DSH) payments.6 BIDMC’s revenue from Medicare one-day stays was over $18 million in 2005 alone.7 BIDMC’s behavior appears to be growing more aggressive. In its recent rating, Moody’s noted that BIDMC’s 4.6% increase in inpatient admissions in 2007 was partially due to “Improved coding which shifted patients from observation status to inpatient status.”8 However, shifting patients from observation status to inpatient status is the opposite of what is recommended by Medicare guidance for hospitals that have high one-day stay rates, which recommends that hospitals review a sample of cases “to determine if inpatient admission was necessary or if care could have been provided more efficiently on an outpatient basis (e.g., outpatient observation).”9 BIDMC’s behavior is also particularly surprising at a time of intense public scrutiny on the cost of healthcare in Massachusetts. BIDMC has attempted to position itself as a “low-cost”

5 Maryland hospitals are rate regulated and paid under a Medicare waiver that may not raise the same compliance issues as hospitals paid under traditional Medicare 6 See Section 4 7 Medicare Claims Data, 2005 8 “Moody’s Assigns A3 Rating to Upcoming $282.2 Million Financing for CareGroup, Inc. (MA),” Moody’s Investor’s Service, January 30, 2008. 9 Program for Evaluating Payment Patterns Electronic Report

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provider10 but is engaging in a practice that could be adding significant additional costs to the system. In the coming cost-control environment, this may be a risky business practice. The remainder of this document further examines background on the issue of one day stays; explores one day stay billing in Massachusetts; assesses BIDMC’s one-day stay behavior compared to other Massachusetts hospitals and to other CareGroup subsidiaries; and finally details financial implications of this behavior. The document is organized as follows:

1. Background on one-day stays 2. One-day stay rates in Massachusetts 3. Assessing BIDMC’s one-day stay behavior 4. Financial and cost implications of one-day stays

10 “Paul Levy: Goal-oriented” by Mark Hollmer, Boston Business Journal, June 29, 2007 http://boston.bizjournals.com/boston/stories/2007/07/02/story5.html , Accessed March 13, 2008 See also, “Time to call HBS?” Paul Levy, Running a Hospital blog http://runningahospital.blogspot.com/2007/06/time-to-call-hbs.html Accessed March 13, 2008

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1. Background on one-day stays One day stays are a well established area of regulatory scrutiny. The reasonableness of one day stay admissions for Medicare patients was a focus of the Office of Inspector General (OIG) work plans for 2000-2002. One day stay admissions became a permanent focus of the Program for Evaluating Payment Patterns Electronic Report (PEPPER), which provides hospitals with statistics of administrative claims data on areas that the Center for Medicare and Medicaid Services (CMS) has identified as likely to have payment errors due to billing, coding and/or admission necessity issues. As mentioned in the introduction, the OIG and other regulators have taken enforcement action for over-billing of one-day stays. According to the PEPPER program, in fiscal year 2005, thirty-nine percent of all Medicare admission denials nationally were for admissions with a length of stay of one day.11 The PEPPER program works through state Quality Improvement Organizations, (QIO’s) to improve hospital compliance. MassPRO, the Massachusetts QIO, sends quarterly reports to hospitals with their results, comparisons to state benchmarks, and detailed reports to focus compliance efforts. MassPRO has instructed hospital managers to “look at your one day stay report closely to see how you compare to other MA hospitals.”12 Medicare recommends that hospitals with a high rate of one day stays examine billing, noting that, “This could indicate that there are unnecessary admissions related to inappropriate use of admission screening criteria or outpatient observation. A sample of one-day stay cases should be reviewed to determine if inpatient admission was necessary or if care could have been provided more efficiently on an outpatient basis (e.g., outpatient observation).”13 2. BIDMC and other CareGroup hospitals have the highest rates of one day stays in Massachusetts BIDMC has the highest rate of one day stays in Massachusetts for Medicare patients, nearly double the statewide rate over the last five years, using the original PEPPER definition of discharges with length of stay of one day (excluding transfers) as a percent of all discharges.14

11 PEPPER v17 guide July 2007. 12 “Overview of the Hospital Payment Monitoring Program’s (HPMP) PEPPER Reports,” by Christopher G. Richards, RHIA, MassPro, February 6, 2007. http://www.masspro.org/HS/docs/pasteventmaterials/HPMP%20and%20Pepper.ppt 13 PEPPER v 17 guide July 2007 14 PEPPER methodology has since been further refined to exclude inpatient stays with prior observation and to additionally highlight one day stays among medical diagnoses (using DRG’s). Under each of these measures, BIDMC has a high rate of one day stays. This is further illustrated on page 7.

4

0%

5%

10%

15%

20%

25%

30%

F2002 F2003 F2004 F2005 F2006 Total

One Day Stays 

BIDMC

MA Statewide Rate

Source: DHCFP Massachusetts Hospital Discharge Data, 2002-2006, MA Statewide Rate of all general acute care hospitals By the same measure, BIDMC subsidiary Beth Israel Deaconess Needham Hospital (BID-Needham) is the second-highest in the state and fellow CareGroup hospital Mount Auburn is third. The PEPPER model further suggests comparisons among hospitals within a system.15

Top 10 Hospitals F2002 R F2003 R F2004 R F2005 R F2006 R Total R

One Day Stays

Beth Israel Deaconess 22% 2 24% 1 24% 1 20% 2 20% 2 22% 1 12471

BID - Needham 18% 6 18% 7 21% 2 17% 8 21% 1 19% 2 1330

Mount Auburn 19% 5 18% 6 18% 5 21% 1 19% 3 19% 3 4966

Lahey Clinic 20% 4 19% 4 20% 3 18% 7 16% 10 19% 4 7373

Nantucket Cottage 23% 1 21% 2 11% 34 20% 3 17% 8 18% 5 193

Athol Memorial 17% 8 20% 3 13% 19 19% 4 18% 4 17% 6 460

Brigham and Women's 15% 15 17% 9 18% 6 19% 5 18% 5 17% 7 9301

UMass Memorial 16% 11 17% 8 17% 7 18% 6 17% 7 17% 8 10726

Faulkner Hospital 15% 14 14% 14 15% 11 16% 9 17% 6 16% 9 2499

Winchester Hospital 17% 9 16% 11 15% 12 14% 11 14% 13 15% 10 2968

Statewide Rate 12.2% 12.2% 12.4% 11.5% 11.5% 11.9% All Massachusetts Medicare Discharges, 2002-2006 R = Rank Source: DHCFP Massachusetts Hospital Discharge Data According to the PEPPER program, a result at or above the 75th percentile statewide suggests that there could be unnecessary admissions related to inappropriate use of admission screening 15 “Reap the benefits of PEPPER and reduce your error rate!”Kathy Terry and Richard Lee, IPRO (Fall/Winter 2005-2006) Available at: http://pepper.hpmpresources.org/PEPPER/PEPPERTraining/TrainingForShortTermAcuteCareHospitals/tabid/1239/Default.aspx

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criteria or outpatient observation. In such cases it is suggested that a sample of one-day stay cases be reviewed to determine if inpatient admission was necessary or if care could have been provided more efficiently on an outpatient basis (e.g., outpatient observation).16 BIDMC has high one day stay rates in all targeted areas PEPPER identifies several specific diagnoses (Diagnosis Related Groups, or DRG’s) with one day stays as having particularly high risk for billing errors in an inpatient setting. These include heart failure and shock (DRG 127), chest pain (DRG 143), esophagitis, gastroenteritis and miscellaneous digestive disorders (DRGs 182 and 183) and nutritional and miscellaneous metabolic disorders (DRGs 296 and 297). BIDMC is significantly above the statewide rate in each of these known problem areas:

0%

10%

20%

30%

40%

50%

60%

70%

DRG 127 DRG 143 DRGs 182‐3

DRGs 296‐7

Percen

t of a

ll discha

rges

One Day Stays

BIDMC

MA Statewide Rate

Source: DHCFP Massachusetts Hospital Discharge Data, 2002-2006 In fact, BIDMC has the highest percentage of one day stays in Massachusetts for DRG’s 182 and 183, and for DRG’s 296 and 297, as well as the highest one day stay rate overall in DRG’s flagged by PEPPER. Note that fellow CareGroup hospitals Mount Auburn and BID-Needham again have the second and third highest rates overall in these areas flagged by PEPPER.

16 Pepper v17 guide July 2007.

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Top 10 Hospitals DRG 127 R

DRG 143 R

DRGs 182-3 R

DRGs 296-7 R Total R

One Day Stays

Beth Israel Deaconess 14% 2 65% 5 34% 1 28% 1 31.3% 1 1945Mount Auburn Hospital 14% 1 65% 4 33% 3 20% 5 30.3% 2 1238BID–Needham 10% 10 65% 2 34% 2 25% 2 29.0% 3 406Umass Memorial 13% 3 61% 9 28% 4 19% 7 28.7% 4 2252Winchester Hospital 11% 8 60% 10 25% 8 18% 10 26.0% 5 827Faulkner Hospital 11% 5 65% 6 26% 6 17% 12 25.8% 6 661Brigham & Women’s 11% 7 56% 16 25% 7 24% 3 25.5% 7 1187Caritas Carney 12% 4 68% 1 23% 11 20% 6 23.8% 8 586Baystate Med. Ctr. 10% 14 57% 13 19% 22 14% 20 23.2% 9 1508Anna Jacques 9% 19 54% 20 23% 12 14% 16 23.2% 10 614Statewide Rate 8% 47% 18% 13% 18.1% All Massachusetts Medicare Discharges, 2002-2006, R= Rank; Source: DHCFP Massachusetts Hospital Discharge Data PEPPER has also specifically targeted medical (as opposed to surgical) discharges and discharges without a prior observation stay.17 MassPRO review has suggested that cases of percutaneous coronary intervention (PCI) may have been appropriately billed as one-day stays, at least through 2006, 18 and should be excluded from an evaluation of one-day stays. Focusing on each of these areas does not change BIDMC’s behavior relative to its peers. BIDMC still has the highest rate of one-day stays excluding all PCI cases, examining medical DRG’s only, and excluding cases with prior observation stays.

0%

5%

10%

15%

20%

25%

All Excl PCI ‐MassPro

Excl PCI * Medical Only

Med excl prior obs

One Day Stay Rates

BIDMC

Statewide Rate

Source: DHCFP Masssachusetts Hospital Discharge Data, 2002-2006

17 PEPPER v. 17 18 MassPRO, the Massachusetts QIO, undertook a review of one-day stays for cases involving the insertion of coronary stents, a clinical area found to have the highest number of one-day stays statewide. The MassPRO reviewers found that through 2006, the inpatient admissions for coronary artery stents did not appear to be payment errors. However, there have been additional changes since the time of their initial review, and MassPRO now considers inpatient admissions for these and similar cases to not generally be required. “Applying Data to the Real Word Leads to Surprising Results” MassPRO, Fall 2007

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3. Further assessing the reasonableness of BIDMC’s one day stays The PEPPER model examines inpatient discharges only to look for behavior deviant from other providers. However, another test of the reasonableness of one-day stay discharges is to look at the underlying population of patients. This is possible for patients originating in the ER, a source which accounts for about half of all one-day stays. Looking at all patients who enter the ER, it is possible to case-mix adjust for primary diagnosis, the strongest predictor of whether a patient will be admitted for a one day stay.19 The following diagram shows the general flow of patients through an ER and compares BIDMC to the Massachusetts statewide norm. Looking at this larger population of all patients who enter a hospital ER, BIDMC again has the highest rate of one day stays, significantly more than the statewide rate. Of note, BIDMC admits 58% of all patients, regardless of length of stay, significantly more than the statewide rate of just 36%.

19 In this case, we further limit one-day stays to include only medical discharges to account for Medicare rules mandating certain surgical procedures be performed only on an inpatient basis.

Inpatient ~58% of BIDMC patients ~36% of MA patients get an inpatient bed (directly or via observation)

All MA Medicare ER Patients BIDMC: ~11,000 patients / year MA: ~500,000 patients / year

Observation 2-4% of patients enter observation and most are discharged

Inpatient one-day stays ~10% of BIDMC ER patients ~4% of MA ER patients

Discharge ~38% of BIDMC ER Patients, ~62% of MA patients are discharged directly from the ER

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38%62%

4%

2%48%

32%

10% 4%

BIDMC MA Statewide Rate

Medicare ER PatientsER only Observ. IP > 1 day IP 1‐day

Source: DHCFP Data, 2003-2006, IP = Inpatient, Observ = Observation, ER = Emergency Room Case-Mix Adjustment The primary diagnoses of BIDMC’s patients do not explain this discrepancy. The rate of admissions, and one day stays, vary considerably by patient diagnosis. For example, virtually all patients diagnosed with heart attacks are admitted for inpatient care, while patients with various types of pains are admitted less than ten percent of the time. Comparing BIDMC to statewide practice shows that even within very specific diagnoses, BIDMC has high rates of one-day stays. For the five most common diagnoses of Medicare patients presenting to BIDMC’s ER:

36%

14%

9%11%

16%

20%

6%

3% 3% 4%

One‐Day Stay Rates for Common ER DiagnosesBIDMC Statewide

Source: DHCFP Data, 2003-2006

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In each of these diagnoses BIDMC has a significantly higher rate of one-day stays than the statewide rate. Running this comparison over all ER patients produces a rate of expected one-day stays based on the primary diagnoses of each patient. That is, the expected rate of one-day stays is how many one-day stays would result if patients with the same diagnostic mix were admitted to one-day stays at the statewide rate. Any excess one-day stays are additional admissions not explained by the underlying diagnostic mix. Thus, even accounting for the case mix of BIDMC’s ER patients, BIDMC still has over twice as many one day stays as expected, and the highest number of excess one day stays. The following chart and table illustrate this, based on primary diagnosis:

0

1000

2000

3000

4000

5000

0%

2%

4%

6%

8%

10%

12%

BIDMC

Num

ber o

f One

Day

Sta

ys

Per

cent

of a

ll E

R P

atie

nts

One Day Stays from ER

Excess One Day Stays

Expected One Day Stays

Source: DHCFP Data, 2003-2006 As stated above, BIDMC also has a higher than expected rate for all admissions, not just one days, and this remains true after accounting for the primary diagnoses of the patients. Also of note, Mount Auburn and BID-Needham are the only other two hospitals in Massachusetts to have more than twice their expected number of one day stays (percent excess greater than 50%). Top 10 Hospitals

A: One Day Stay Percent

B: Expected One Day Stay Percent

C: One Day Stays

D: Expected One Day Stays

E: Excess One Day Stays

F = E / C: Percent Excess

Beth Israel Deaconess Medical Center 10.0% 4.5% 4668 2090.50 2577.50 55.2%Mount Auburn Hospital 9.4% 4.0% 2596 1094.39 1501.61 57.8%Brigham And Women’s Hospital 7.0% 4.1% 2921 1718.40 1202.60 41.2%Beth Israel Deaconess – Needham 7.0% 3.4% 833 410.54 422.46 50.7%Faulkner Hospital 6.7% 3.6% 1544 823.78 720.22 46.6%Caritas Carney Hospital 6.3% 3.6% 1473 834.74 638.26 43.3%Umass Memorial Medical Center 6.3% 3.8% 3979 2415.17 1563.83 39.3%Winchester Hospital 5.6% 3.7% 1417 935.96 481.04 33.9%Anna Jaques Hospital 5.0% 3.7% 1193 876.24 316.76 26.6%Baystate Medical Center 5.0% 4.2% 3181 2725.84 455.16 14.3%Statewide 3.63% 3.60% 67150 66466.86 683.14 1.02%Source: DHCFP Data, 2003 – 2006, Medicare Patients who originated in the ER (n = 63)

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4. Payment and cost implications of BIDMC’s one-day stay behavior The financial implications of one day stay billing are particularly dramatic for BIDMC because the hospital receives significant Indirect Medical Education (IME) and Disproportionate Share Hospital (DSH) payments. These additional payments are added only to inpatient claims, creating an even larger disparity between the payments for outpatient visits and inpatient stays. The whisteblower complaint at St. Joseph’s Hospital of Atlanta estimated the payment difference between inpatient and outpatient observation at approximately $3,000 per case.20 However, as BIDMC’s parent company CareGroup made clear in a presentation released to investors, the difference at BIDMC may be as high as $5,000 per case.21

IME and DSH payments at BIDMC add between 45 and 50% to the base DRG payment of around $4000, increasing BIDMC’s base payment to between $5800and $6000. According to the most recent available data, BIDMC’s IME add-on was 38%, and its DSH add-on was 7%.22 One day stays as a driver of volume were also noted in a Moody’s rating of BIDMC’s forthcoming issue of new debt, which noted that “BIDMC in particular, has grown its volume, with 4.6% increase in inpatient admissions in 2007 over 2006 which required adding staffed beds during the year. Improved coding which shifted patients from observation status to inpatient status and new strategic relationships with suburban hospitals are credited with some of the increase.”23 [Emphasis added].

20 Complaint: United States of America, ex rel, Tami M. Ramsey v. St. Joseph’s Hospital of Atlanta, filed November 16, 2004 at page 5, paragraph 15 21 “Financial Turnaround Continues” Presentation by CareGroup Healthcare System, dated May 21, 2004; filed with Nationally Recognized Municipal Securities Information Repositories on June 2, 2004. 22 HHS CMS Medicare Acute Inpatient Prospective Payment System Impact Files, 2002-2007 23 “Moody’s Assigns A3 Rating to Upcoming $282.2 Million Financing for CareGroup, Inc. (MA),” Moody’s Investor’s Service, January 30, 2008.

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We believe BIDMC’s outlier behavior, coupled with these financial incentives is a troubling combination that may warrant additional scrutiny. By way of example, MassPro recently worked with UMass Memorial Medical Center to address their high one-day state rate and improve their Medicare compliance. The project moved UMass Memorial from among the top five providers related to specific DRG’s to outside the top twenty.24 To get BIDMC below the top twenty providers for one day stays would take a nearly 40% reduction in their current one-day stay rate, around 1,000 discharges per year.25 This could have a significant financial impact on BIDMC, as well as on CareGroup. In particular, Moody’s noted CareGroup’s “[r]eliance” on BIDMC when it stated in its analysis of CareGroup’s financial position that “[a]ny changes to performance at BIDMC will disproportionately impact system results.” Since management is receiving regular communication from the PEPPER program and has explained the financial impact of this practice to bondholders and apparently to credit raters, we believe management is aware that this billing practice has a clear and significant impacts on revenue, and thus more generally on the cost of healthcare. BIDMC’s high rate of one-day stays is particularly surprising given the intense focus on controlling healthcare costs in Massachusetts at this time. As a Boston Globe editorial recently noted, "the state's political leadership is determined to get these [healthcare] costs under control."26 The state Senate leadership, the Health Care Quality and Cost Council, and the state’s largest insurers are all pursuing major initiatives to control healthcare costs. Several of the initiatives they are considering include components, such as payment system reform, comparative effectiveness analysis and public accountability, that could limit the practice or financial payoff of high rates of one-day stays in the future.

24 “UMass Memorial Medical Center and Masspro Work Together to Improve One-Day Stay Rates and Compliance with Medicare Regulations” Masspro Quality Works in Review Services Fall 2007 Newsletter http://www.masspro.org/REPS/MECA/HPMP/docs/newsletters/Review%20Services%20Newsletter%20Fall%202007l.pdf 25 BIDMC one-day stay rate over 2002-2006 is 21.8%, while the twentieth hospital’s is 13%. 26 “Murray sends a message” Boston Globe March 6, 2008. http://www.boston.com/bostonglobe/editorial_opinion/editorials/articles/2008/03/06/murray_sends_a_message/ Accessed March 13, 2008

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Appendix: Data Sources Medicare Claims Data, Inpatient Standard Analytic File (SAF) 2000-2005 Massachusetts Division of Health of Healthcare Finance and Policy (DHCFP) Hospital Discharge Database, 2002-2006 DHCFP Emergency Department Database, 2003-2006 DHCFP Outpatient Observation Database, 2003-2006