News: MA plans violate federal regulations via observation reclassifications, report suggests

Between June 2023 and June 2024, Medicare Advantage (MA) plans classified far fewer hospital stays as observation visits than traditional Medicare, a new report suggests.

The report, conducted by Kodiak Solutions, collected data from more than 1,900 hospitals. According to Business Wire, “MA plans began classifying fewer stays as observation visits starting in January 2024, when a new federal regulation required MA plans to offer their members the same covered services received by beneficiaries in traditional, fee-for-service Medicare.”

During the last six months of 2023, observation rates for MA plans ranged between 18.1% and 20.2%; however, in the first six months of 2024, those rates decreased to nearly a third at a range of 14.1% and 16.1%. During this same period, traditional Medicare rates also trended downward; however, the range was far less steep (5.2% to 3.7%).

“The gap in observation rates between MA plans and traditional Medicare suggests that MA plans are not fully complying with the federal rule requiring MA plans to offer members the same coverage as traditional Medicare,” said Matt Szaflarski, director of revenue cycle for Kodiak Solutions, in an interview with Business Wire.

To minimize the number of incoming denials of this type, Szaflarski encourages health systems to “closely monitor payor behaviors across all lines of business regarding observation stays,” and encourages revenue cycle leaders to “be on the lookout for the worst examples of these reclassifications to share with their advocacy organizations.”

Editor’s note: To read the Business Wire coverage and Kodiak Solutions study, click here.