Observation Status Increases Costs for Medicare Hospital Patients

Observation Status Increases Costs for Medicare Hospital Patients

It seems obvious that a patient who spends the night in the hospital would be considered an inpatient but it is not that simple. Hospital observation status is increasingly being used as hospitals try to reduce the costs and risks involved in determining whether someone qualifies to be an inpatient. However remaining in the hospital on observation status can increase a Medicare patient’s costs by thousands of dollars.

A patient can be considered to be on outpatient status even if they spend one or two nights in the hospital. Patients are not technically inpatients unless a doctor specifically orders an inpatient admission. Observation status is not new, but as health care costs rise it is beginning to be used more.

The person is most likely being treated the same whether they are in observation or an inpatient. He or she will have the same bed, the same room, the same nursing care, and the same doctor. It will make no difference in how the patient is treated and most likely the individual will probably be unaware of hospital status. Medicare also does not make it a requirement that hospitals inform the person if he or she is either an inpatient or an outpatient.

However patient should not just assume that they are inpatients just because they are in the hospital for one or two nights. A Brown University study found more than 10 percent of observation patients were in the hospital for more than 48 hours. Over 44,000 individuals were kept in observation status for 72 hours or more.

But whether people are classified as inpatients or outpatients determine how much hospitals are able to charge them for the stay. It also governs whether or not Medicare will pay for nursing home care if a physician feels patients are unable to directly home from the hospital.

There is an increasing problem with overuse of hospital observation status as healthcare costs rise. The number of seniors in the hospital for observation increased 69 percent from 2006 to 2011. Six of the top 10 reasons for observation – irregular heartbeat, circulatory problems, chest pain, fainting, digestive disorders, and nutritional disorders – are also among the top 10 reasons for short hospital admissions.

Inpatient stays are supposed to be for severe problems requiring highly skilled, technical care. Outpatient observation status is for those not sick enough to need inpatient care, but too sick for care at home and the doctor’s office. A patient may also be assigned to observation if the doctor and hospital are not quite sure how sick they are. Observation is supposed to last only 48 hours at the most, while the doctor decides if the patient is well enough to go home or sick enough to be admitted.

Medicare contracts with companies who review inpatient hospital charts to determine whether the admission was justified. If the contractor determines that the patient should have been an outpatient, Medicare takes the payment back. This could happen months, or even years after the patient was discharged.

However, if the hospital puts a patient in outpatient that should have been an inpatient, Medicare will probably not complain or deny the claim. But the hospital observation patient pays a higher cost. A patient must be in the hospital as an inpatient for three consecutive midnights in order for Medicare to pay for nursing home care when the patient leaves the hospital. If the three-midnight rule is met, Medicare will pay in full for the first 20 days a patient is in a skilled nursing facility (SNF) such as a nursing home.

A hospital patient who has not officially been admitted is not eligible to have Medicare pay for nursing home care after discharge. There are other increased costs if a patient is in outpatient observation status rather than an inpatient. Inpatient charges are paid by Medicare Part A, and the patient pays one deductible for all their hospital services for the first 60 days. Doctor charges are paid by Medicare Part B.

Outpatient hospital charges are paid by Medicare Part B, which again pays for the doctor. But Part B coverage has a copay for all hospital services that the patient is responsible for. The copay is 20% of Medicare’s allowable charge, which is typically much higher than the Part A deductible. The observation patient may also have drug charges that will not be paid by their Medicare Part D coverage. If a patient has supplemental Medigap insurance coverage it will probably pick up what Medicare does not, but it will not pay for a nursing home if Medicare denies the claim.

New Medicare regulations introduced in August, 2013, will require physicians to admit patients whom they expect to be in the hospital for longer than two midnights. If the person is expected to stay for a less amount of time, then the stay would be observation. Called the “Pumpkin Rule,” it would simplify much of the confusion.

The Centers for Medicare and Medicaid Services (CMS) developed the two-midnight rule out of concern that hospitals were overusing observation status. The rule makes the assumption that patients should be considered inpatient if they are in the hospital at least two nights.

Medicare was supposed to begin enforcing the Pumpkin Rule on April 1 of this year, but after resistance from the American Hospital Association and the American Medical Association, enforcement has been delayed until March, 2015.

CMS advises that if patients are in the hospital for more than a few hours they should ask if they are inpatient or outpatient, and should start working with hospital discharge planners right away. The Center for Medicare Advocacy recommends that if the hospital says a patient is outpatient, but does not want them to go home, the patient should perhaps try to get his or her status changed. However an observation patient cannot demand that he or she be made an inpatient just to keep from increasing their out-of-pocket costs. Inpatient criteria must be met.

By Beth A. Balen


NY Times

Bloomberg BNA

PR Web