While hospital patients may not be aware of the distinction between formal admission as an inpatient and mere “observation” as an outpatient, Medicare rules treat those two designations very differently, and that is causing problems for patients, doctors and hospitals.
Medicare pays the entire bill for the first 20 days of care in a skilled nursing facility, such as rehabilitation in a nursing home, but only if the patient was previously admitted to a hospital for at least three days. If the individual was instead placed under observation at a hospital, Medicare pays no part of the nursing home stay, which often costs well over $1,000 per week.
Further complicating the matter for patients is the fact that hospitals are not required to inform patients of their status until they are discharged and are permitted to designate patients as being in observation at any point during their stay – even retroactively.
Hospitals are increasingly placing Medicare beneficiaries in observation and keeping them there longer. The Medicare Benefit Policy Manual says that only in rare cases should hospitals keep patients under observation for more than 48 hours. But Brown University researchers, in a recently-published nationwide study of Medicare claims, found that in over 10 percent of cases, patients in observation were kept in that status for over 48 hours. The study also showed that from 2007 to 2009, the ratio of Medicare patients in observation at hospitals versus those admitted as inpatients increased by 34 percent.
The increase in this practice is likely an unintended consequence of recently-enacted Medicare rules that penalize hospitals for unnecessarily admitting patients and admitting individual patients more than once in a short time span.
Medicare auditors, in an effort to control costs, are increasingly investigating cases in which the agency believes that a hospital admission may have been unnecessary. Also, Medicare will soon start penalizing hospitals that readmit patients less than one month after discharging them – a policy intended to improve hospital care.
The Center for Medicare Advocacy has filed a class action lawsuit against the United States government calling for the abolition of observation status; the American Medical Association has requested that Medicare do away with the policy requiring a three-day hospital stay in order to be covered for nursing home rehabilitation.
The bottom line? If you are a Medicare patient, ask about your status each day you are in the hospital. If you are in observation status, ask your own doctor whether that status is justified. .