Medicare’s Proposed Changes to Hospital Admission Rules Don’t Address Root Concerns

“Observation status” is a hot topic amongst advocates and beneficiaries and is again back in the court room. Lois Frarie, a 93 year old retired teacher in Monterey, California, was left with a $19,000 bill for her skilled nursing home care after 4 days in the hospital. How can this be? While Medicare does cover up to 100 days of SNF care, it only does so if a beneficiary is admitted into the hospital as an inpatient for 3 consecutive days prior to receiving SNF care. Lois found out after the fact that she was held in “observation status” for 2 of her 4 days in the hospital. Therefore, Medicare did not cover her subsequent SNF care.

For some background, observation status has to do with how a hospital classifies a patient depending on the patient’s condition. A patient admitted as an inpatient is billed differently than a patient put under “observation” as an outpatient. In recent years, an increasing number of beneficiaries are being classified as under “observation” past the 24 to 48 hour time limit for observation status, which can have grave financial consequences for Medicare beneficiaries. In fact, the number of Medicare patients receiving observation care jumped 69% in 5 years, to 1.6 million in 2011, according to the most recent federal data.

At the same time as Lois is taking her case to court, Medicare officials have proposed some changes to hospital admission rules, hoping it will reduce the number of beneficiaries being placed in pro-longed observation status and then being ineligible for nursing home care coverage. Under the proposed changes, with some exceptions, if a doctor thinks a beneficiary will stay in the hospital for less than 2 days (or through 2 midnights), the beneficiary would be considered an outpatient and would receive observation care. If the doctor thinks the beneficiary will stay longer, the beneficiary would be admitted. Setting deadlines for observation stays would also limit the growing length of time of observation visits. Yet, such a deadline has supposedly already been in place (where, as mentioned above, observation status is not to exceed 24 to 48 hours), and in 2011 observation visits exceeding 24 hours nearly doubled to 744,748.

Many advocates, doctors and hospitals have expressed this proposal won’t work and won’t address some of the underlying issues. Namely, it does nothing to help beneficiaries in observation status because it keeps the 3-inpatient-days requirement in place; it doesn’t require hospitals to tell patients when they are held for observation; and it doesn’t give patients a right to appeal their observation status. Advocates, including CHA are advising the Centers for Medicare and Medicaid Services (CMS) to either drop the 3-day policy or count observation days toward the requirement. For years, this 3-day policy and the ability for patients to be held in observation status without them knowing about it or the consequences of it, has lead to great confusion and a huge amount of unexpected financial burden for beneficiaries.

Also, according to a recent news article, hospitals are still able to overrule the doctor’s decision to admit a patient. This just creates more confusion when a doctor bills Medicare for inpatient services and the hospital bills for outpatient/observations services.

For more information on this topic, see the following news articles:

In hospital under ‘observation’ care?  It can cost you, USA Today

Medicare Seeks to Limit Number of Seniors Placed in Hospital Observation Care, Kaiser Health News

Karen Joy Fletcher

Our blogger Karen Joy Fletcher is CHA’s Communications Director. With a Masters in Public Health from UC Berkeley, she is the online “public face” of the organization, provides technical expertise, writing and research on Medicare and other health care issues. She is responsible for digital content creation, management of CHA’s editorial calendar, and managing all aspects of CHA’s social media presence. She loves being a “communicator” and enjoys networking and collaborating with the passionate people and agencies in the health advocacy field. See her current articles.