NUR 5820 Module 5 Reimbursement Analysis Example

What Medicare Pays For a Heart Failure Stay, and What That Means for Funding a Transition Nurse on the Telemetry Unit

Student Name

Master of Science in Nursing (MSN), Thomas Edison State University

NUR-5820: Financial Management in Nursing Practice

Mentor Name

Month Day, Year

What Medicare Pays For a Heart Failure Stay, and What That Means for Funding a Transition Nurse on the Telemetry Unit

Heart failure is the most common diagnosis on our telemetry unit and one of the most common reasons Medicare patients are readmitted to the hospital. The unit's staff have proposed a 1.0 FTE heart failure transition nurse who would teach patients before discharge, call them within forty-eight hours and see that they have a follow-up appointment within a week. The proposal costs money, and whether the hospital funds it depends partly on the payment rules behind each stay. This paper explains how Medicare pays for a heart failure stay, how observation status, the readmissions penalty and nonpayment for hospital-acquired conditions change the picture, and what these rules mean for the spending decision.

Payment by Diagnosis

For inpatient admissions, Medicare uses a prospective system that sets the price before care is given. Coders place each stay in one of Medicare's severity-adjusted diagnosis groups using the principal diagnosis, other diagnoses and any procedures. Heart failure stays fall into three groups, separated by whether coded secondary conditions are major, moderate or absent. The payment equals a national base rate multiplied by the group's relative weight and adjusted for local wages and other factors. A three-day stay and a six-day stay in the same group earn the hospital the same amount, with an extra outlier payment only for extraordinarily costly cases.

This fixed payment gives the hospital a strong reason to manage length of stay and resource use. It also means nursing care, which is generally bundled into the daily room charge rather than billed separately, as Welton and Harris (2007) described, earns no additional revenue when a patient needs more of it. Accurate documentation of complications and comorbidities matters, because it determines which of the three groups the stay falls into.

Patients also deserve a plain explanation. Many assume they are paying for each day in the hospital, and families sometimes ask nurses why a patient is being discharged before feeling fully well. Understanding fixed payment helps nurses explain discharge timing honestly, while making sure that no patient leaves before it is safe.

Observation Status

Not every telemetry patient is an inpatient. Patients placed in observation status are outpatients for billing purposes, even if they occupy the same bed, and Medicare pays for observation under the outpatient prospective payment system at a lower rate than an inpatient stay. Medicare's two-midnight policy generally supports inpatient status when the doctor admitting the patient reasonably expects care to cross two midnights. For patients, observation can mean higher out-of-pocket costs and, for those who later need a skilled nursing facility, the loss of Medicare coverage that requires a three-day inpatient stay. Nurses on our unit field questions about observation status every week and should be able to explain it accurately.

The Readmissions Penalty

The Hospital Readmissions Reduction Program, created by the Affordable Care Act, lowers Medicare payments when a hospital's thirty-day readmissions exceed the rate predicted for its patients for selected conditions, including heart failure. The payment adjustment is applied to the hospital's base inpatient payments for all Medicare stays, not just heart failure, and the maximum reduction is 3% (42 C.F.R. § 412.154). For a hospital our size, that maximum could amount to hundreds of thousands of dollars a year.

The program appears to have changed hospital behavior. Zuckerman et al. (2016) tracked 3,387 hospitals and reported that thirty-day returns for the penalized conditions dropped from 21.5% (2007) to 17.8% (2015), falling fastest in the months after the law was enacted. Use of observation stays rose over the same period, but within hospitals, increases in observation did not track with the drop in returns, which suggests the decline was not simply a matter of relabeling returning patients.

Nonpayment for Hospital-Acquired Conditions

Since 2008, Medicare has not paid the higher rate for certain conditions acquired during the stay, such as catheter-associated urinary tract infections, falls with injury and stage 3 or 4 pressure injuries, when they were not present on admission. A second program trims 1% from Medicare payments to the hospitals that rank in the bottom fourth on hospital-acquired condition scores. The effect of nonpayment alone on infection rates has been questioned. Lee et al. (2012) studied 398 hospitals or health systems and found no measurable change in rates of catheter-associated bloodstream infections or urinary tract infections after the policy took effect; rates were already falling before it. For the unit, the lesson is that the financial incentive is real but small for any single case, and the reason to prevent these conditions remains patient harm.

What the Rules Mean for the Transition Nurse

The payment rules point in different directions. Under the fixed payment for each stay, a readmission brings a new payment, so in a narrow sense fewer readmissions mean less revenue. The readmissions penalty, however, reduces payment for every Medicare stay, and a growing share of our patients are covered by Medicare Advantage plans and value-based contracts that reward the hospital for keeping patients well. The transition nurse would cost about $98,000 a year with benefits. If the program lowered the unit's heart failure readmission rate enough to move the hospital out of a penalty, or to meet targets in value-based contracts, it could more than pay for itself, and it would also reduce the emergency department boarding that readmissions cause.

The recommendation is to fund the position for one year, track thirty-day readmissions, observation returns and patient-reported readiness for discharge, and work with finance to estimate the effect on the penalty and on value-based contract payments. The case rests on patient outcomes first, but it should be presented to finance in the payment terms explained here.

Two further points shape the case. First, commercial insurers often follow Medicare's lead on readmissions in their contracts, so the financial effect may reach beyond Medicare patients. Second, the transition nurse's work overlaps with services that can be billed in some settings, such as transitional care management by a physician or nurse practitioner after discharge. If the hospital's affiliated practices bill those services, the nurse's calls and teaching could support them, and finance should examine whether that link changes the return.

References

42 C.F.R. § 412.154 (2024). Payment adjustments under the Hospital Readmissions Reduction Program. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-412/subpart-I/section-412.154

Lee, G. M., Kleinman, K., Soumerai, S. B., Tse, A., Cole, D., Fridkin, S. K., Horan, T., Platt, R., Gay, C., Kassler, W., Goldmann, D. A., Jernigan, J., & Jha, A. K. (2012). Effect of nonpayment for preventable infections in U.S. hospitals. New England Journal of Medicine, 367(15), 1428-1437. https://doi.org/10.1056/NEJMsa1202419

Welton, J. M., & Harris, K. (2007). Hospital billing and reimbursement: Charging for inpatient nursing care. JONA: The Journal of Nursing Administration, 37(4), 164-166. https://doi.org/10.1097/01.nna.0000266846.77178.23

Zuckerman, R. B., Sheingold, S. H., Orav, E. J., Ruhter, J., & Epstein, A. M. (2016). Readmissions, observation, and the Hospital Readmissions Reduction Program. New England Journal of Medicine, 374(16), 1543-1551. https://doi.org/10.1056/NEJMsa1513024