New Hope for Medicare Recipients Impacted by “Observation Status” Rules

Being in the hospital in an Observation Status comes as a rude awakening to many seniors. Being placed in a room has always meant you were being admitted. Right? Nope, at best that would be a big maybe.

In 2013 it was called the “two-midnight rule” to help clarify defining observation status, but that’s changed. An unintended consequence of this rule and to avoid denial of payments by Medicare for hospital admissions challenged by Medicare auditors, hospitals have increased the use of observation visits. The ramification of this change has proven to be costly to many patients who unwittingly thought that they were admitted as inpatients.
According to a New York Times article New Medicare Law to Notify Patients of Loophole in Nursing Home Coverage “Hospitals have found themselves in a squeeze. They increased their use of “observation status” in response to scrutiny of their billing practices by Medicare auditors — private companies hired by the government to review claims. In many cases, these companies challenged decisions by doctors to admit patients to a hospital, saying the services should have been provided on an outpatient basis. The auditors then tried to recover what they described as improper payments [from the hospitals].
Doctors and hospitals said the auditors were like bounty hunters because they could keep a percentage of the funds they recovered.” Unfortunately, this shifts the cost to the patient.

While observation patients may share in the use of services with admitted patients their status may deny them reimbursement for some of those costs. More importantly, because Medicare requires any patient moving into a skilled nursing facility (SNF) to have been inpatient in an acute care hospital for a minimum of 3 days. Therefore, without the required 3 days as an inpatient, any costs of the skilled care are borne by the patient
As reported by law firm Lamson and Cutner, P.C. in an article titled Hospital Inpatient vs. Outpatient Observation Status – Why It’s Important “A sensible question to ask is: Why are hospitals admitting some patients under observation status rather than as inpatients? The answer may be found at least partly in the financial penalties Medicare imposes on hospitals if more than a certain percentage of patients are readmitted within 30 days”. In a 2016 article entitled “The Hidden Financial Incentives Behind Your Shorter Hospital Stay,” the New York Times stated that “Under Medicare’s Hospital Readmissions Reduction Program, hospitals now lose up to 3 percent of their total Medicare payments for high rates of patients readmitted within 30 days of discharge.” “[There is] evidence that hospitals are gaming the metric. For instance, patients who are placed under ‘observation status’ are not counted in the readmissions metric even though they may receive the same care as patients formally admitted to the hospital.
Likewise, patients treated in the emergency room and not admitted to the hospital do not affect the readmissions metric either.”
While most Decisions by Medicare can be appealed by patients the observation classification cannot. However, on July 31st, 2017 the U.S. District Court in Connecticut ruled in favor of a class action lawsuit in Alexander v Price. The trial, expected to start in 2018, if successful will allow patients to appeal their hospitalization status dating back to determinations starting on January 1, 2009.

In the meantime, patients who are hospitalized for more than 24 hours must be notified in writing within 36 hours of their status as either inpatient or observation. This law became effective in August 2016. Once notified of their status, presumably the patient may ask the physician to change an observation to inpatient.
As a footnote, one very interesting study reported by Todays Hospitalist, Study Results Push Back on Readmission Penalties “a new analysis of more than 4,450 acute-care facilities, which found that hospitals with the highest hospital-wide readmission rates are more likely to have the lowest mortality rates for patients with three common conditions. “The fact that mortality and readmission were, in some instances, inversely related, should raise some eyebrows about how well readmissions function as a quality metric,” says Daniel J. Brotman, MD, director of the hospitalist program at Baltimore’s Johns Hopkins Hospital.” As older patients typically have more complex conditions it seems logical that added care from a readmission would permit their doctor to treat further.

This article was submitted by Dennis Patouhas, owner Comfort Keepers of Lower Fairfield County, one of the oldest agencies in the area with over16 years of experience helping hundreds of families with elder care for their loved ones. Dennis can be reached at 203.629-5029.