Medicare officials have proposed changes in hospital admission rules in an effort to reduce the rising number of beneficiaries who are placed in "observation care" but not admitted to the hospital. When a patient is placed in observation care, but not formally admitted to the hospital, the patient is often rendered ineligible for nursing home coverage. Patients must spend three consecutive inpatient days in the hospital before Medicare will cover nursing home care ordered by a doctor.
Observation patients don't qualify, even if they have been in the hospital for three days because they are outpatients and have not been admitted. If the patient was in the hospital for three days, but under observation as an out-patient, and then is referred to a nursing home, the patient is solely responsible for the cost of care in the nursing home.
Adding insult to injury, these patients also often realize higher out-of-pocket costs than admitted patients while in the hospital, including higher copayments and charges for non-covered medications. Observation is generally cheaper than inpatient care for insurers and hospitals, but the opposite can hold true formany patients. Many patients have supplemental coverage that picks up the portion of her hospital bill Medicare does not pay, but observation patients without other coverage typically pay 20 percent of hospital outpatient services, which isn't required for inpatient care.
One might think that patients would object to the practice, but sadly, patients are usually wholly unaware that they are being treated as out-patients, since they are, after all, in a hospital. This lack of notice and knowledge renders the patient impotent to protect his or her own interests, and to control his or her costs. Hospitals are simply not required to tell patients they are under observation care. Most do not.
Even if hospitals do inform the patient, it is unlikely that the patient would immediately appreciate that the classification as an out-patient under observation significantly impacts his or her rights and cost of care. The realization and appreciation of the impact usually comes simultaneous with receiving an unexpectedly large bill for services. Once patients leave the hospital and then find out they were receiving observation services, i.e., when a bill arrives, it is too late to do anything different. Hospitals and physicians are prohibited from reclassifying observation patients as inpatients once they've been discharged, according to Medicare rules.
The number of observation patients has jumped 69 percent in the past five years, to 1.6 million in 2011, according to federal records. These patients are also staying in the hospital longer, even though Medicare guidelines suggest that hospitals admit or discharge the patient within 24 to 48 hours. Observation visits exceeding 24 hours have nearly doubled to 744,748, and comprised almost one-half of the total observation visits in 2011. Moreover, according to researchers at Brown University, who recently published a nationwide analysis of Medicare claims in the journal Health Affairs, more than 10 percent of patients in observation were kept there for more than 48 hours. The Brown University study identified more than 44,800 who were kept in observation for 72 hours or longer in 2009 — an increase of 88 percent since 2007!
The reasons for these increases are difficult to pin down. Some suggest the longer observation stays occur because hospitals are not sure Medicare will pay them if patients are admitted. If a hospital admits a patient who Medicare feels should have been placed under observation, Medicare can refuse to pay the hospital for care. Private insurers also emphasize outpatient care to reduce costs, but most don't require a three-day inpatient stay to cover nursing home care. With the federal health care law looking to hospitals to reduce high readmission rates, some say hospitals are reportedly more likely to keep patients in observation rather than send them home too early or admit them.
Medicare may further exacerbate the problem as it strives to improve the quality of care, Medicare can penalize hospitals that readmit patients in less than 30 days. Hospitals might be encouraged to treat patients as observation patients so that they cannot be counted as readmissions if they happen to return.
Some point to the administrative burden of admitting patients formally, only to be quickly discharged when justification for continued care does not exist. Regardless of the reason, the practice is more widespread, and it's adverse financial impact for patients more acute, than ever before.
Under the proposed changes, with some exceptions, if a physician expects a senior will stay in the hospital for less than two days (or through two midnights), the patient would be considered an outpatient receiving observation care. If the physician thinks the patient will stay longer, the patient would be admitted. Setting deadlines for observation stays would, according to the those advocating the changes, also limit the growing length of time of observation visits.
The reaction from patient advocates, doctors and hospitals has been swift and surprisingly unanimous:the changes are a bad idea. Rather than more lengthy and ambiguous rules and regulations, most suggest a simple approach. The American Medical Association is still reviewing the proposed changes, but the changes don't appear to include steps it asked Medicare to take last year: either drop the three-day policy or count observation days toward the requirement. This author prefers the latter approach because hospitals can then continue to utilize observation visits to relieve themselves from costs and penalties Medicare imposes. Regardless, patients should be informed of their status, and should have a meaningful right to appeal the determination in order to challenge unexpected costs and expenses.
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