How Your Hospital Admission Status Affects Your Medicare Benefits
While hospital patients may not realize the difference between being formally admitted as an inpatient and merely being placed under “observation” as an outpatient, Medicare rules treat these two designations very differently, leading to problems for patients, doctors, and hospitals.
Medicare covers the full cost for the first 20 days of care in a skilled nursing facility, such as rehabilitation in a nursing home, but only if the patient has been formally admitted to a hospital for at least three days. If the patient is placed under observation at the hospital, Medicare does not cover any part of the nursing home stay, which can often exceed $1,000 per week.
To further complicate matters, hospitals are not required to inform patients of their status until discharge and can designate patients as being under observation at any point during their stay, even retroactively.
Hospitals are increasingly placing Medicare beneficiaries in observation status and keeping them there longer. The Medicare Benefit Policy Manual indicates that hospitals should only keep patients under observation for more than 48 hours in rare cases. However, a nationwide study of Medicare claims by Brown University researchers found that over 10 percent of patients in observation were kept in that status for more than 48 hours. The study also revealed that from 2007 to 2009, the ratio of Medicare patients in observation versus those admitted as inpatients increased by 34 percent.
This increase is likely an unintended consequence of recent Medicare rules that penalize hospitals for unnecessary admissions and for readmitting individual patients within a short time span.
Medicare auditors, aiming to control costs, are increasingly investigating cases where they believe a hospital admission was unnecessary. Additionally, Medicare will soon start penalizing hospitals that readmit patients within one month of discharge, a policy intended to improve hospital care.
The Center for Medicare Advocacy has filed a class-action lawsuit against the U.S. government to abolish observation status. Meanwhile, the American Medical Association has requested that Medicare eliminate the requirement for a three-day hospital stay 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 under observation, ask your doctor whether that status is justified.
