Seniors Increasingly Entering Hospitals Under Observation Care

Medicare News, Questions
Seniors Increasingly Entering Hospitals as Observation Patients

Seniors can spend days in the hospital under observation care instead of as an admitted patient, which means they have to pay more money out of pocket for drugs and other expenses and they lose coverage for post-hospital nursing care.

Question: My mother was in the hospital for several days and then we had to put her in a nursing home. It turns out that she was never considered an admitted patient while in the hospital. She was considered outpatient under observation care. Because of that, the nursing home is saying we have to pay out of pocket for her nursing home care. How can I fix this?

Answer: You can challenge the observation status. The Center for Medicare Advocacy recommends patients file two kinds of appeals. For more information, read Seniors Increasingly Entering Hospitals As Observation Patients.

Medicare beneficiaries may spend days in the hospital, yet still be considered an outpatient under observation status. This has serious implications for seniors including loss of coverage for post-hospital nursing home care.

Did you know that you can spend days in the hospital receiving care, sleeping in a hospital bed, undergoing tests, and being monitored around the clock, yet not be considered an admitted patient?

When hospital patients are placed on observation status they are labeled “outpatients,” even though they are often on a regular hospital floor for many days, receiving the same care as inpatients. The classification of a hospitalized patient as an “outpatient” can cause many problems for the patient.

Because patients must be hospitalized as inpatients for three consecutive days to receive Medicare coverage of post-hospital nursing home care, people on observation status do not have nursing home coverage. They must either privately pay the high cost of nursing care or forgo that skilled care. The number of people placed on observation status has greatly increased in recent years.

More Medicare beneficiaries are entering hospitals as observation patients every year. The number rose 69 percent in five years, to 1.6 million nationally in 2011, according to the most recent federal statistics.  At the same time, Medicare hospital admissions have declined slightly.

The Center For Medicare Advocacy has heard repeatedly about beneficiaries throughout the country whose entire stay in a hospital, including stays as long as 14 days, is classified by the hospital as outpatient observation.  In some instances, the beneficiaries’ physicians order their admission, but the hospital retroactively reverses the decision.  As a consequence of the classification of a hospital stay as outpatient observation (or of the reclassification of a hospital stay from inpatient care, covered by Medicare Part A, to outpatient care, covered by Medicare Part B), beneficiaries are charged for various services they received in the acute care hospital, including their prescription medications.  They are also charged for their entire subsequent SNF stay, having never satisfied the statutory three-day hospital stay requirement.

Here are some common questions and answers about observation care and the coverage gap that can result, courtesy of Kaiser Health News. (Seniors enrolled in Medicare Advantage should ask their plans about their observation care rules since they can vary.)

Q. What is observation care?

A. Hospitals provide observation care for patients who are not well enough to go home but not sick enough to be admitted.  This care requires a doctor’s order and is considered an outpatient service, even though patients may stay as long as several days. The hospitalization can include short-term treatment and tests to help doctors decide whether the patient should be admitted. Medicare guidance recommends that this decision should be made within 24 to 48 hours, but observation visits exceeding 24 hours nearly doubled to 744,748 between 2006 and 2011, federal records show.    

Q. What effect does observation status have on patients’ care and expenses?

A. Because observation care is provided on an outpatient basis, patients usually also have co-payments for doctors’ fees and each hospital service, and they have to pay whatever the hospital charges for any routine drugs the hospital provides that they take at home for chronic conditions such as diabetes or high cholesterol.

Observation patients cannot receive Medicare coverage for follow-up care in a nursing home, even though their doctors recommend it.  To be eligible for nursing home coverage, seniors must have first spent at least three consecutive days (or through three midnights) as an admitted patient, not counting the day of discharge.

Q: Why are more Medicare patients receiving observation care instead of being admitted?

A. Medicare has strict criteria for hospital admissions and usually won’t pay anything for admitted patients who should have been observation patients. In response to these rules, hospitals in recent years have increased their share of observation patients.

But under recently revised Medicare rules, hospitals that were denied reimbursement because a patient should not have been admitted can now can resubmit a bill within one year to Medicare for a payment based on observation status. The American Hospital Association has said that is not enough time and is suing Medicare to end the policy.

Hospitals have another incentive for keeping patients in observation status:  If patients return within 30 days, they don’t count as readmissions since they were not admitted in the first place.  Medicare withholds a percentage of payment from hospitals with high readmission rates.

Q. Will the cost of my maintenance drugs be covered when I am in the hospital?

A. No, Medicare does not pay for these routine drugs for patients in the hospital in observation care. Some hospitals allow patients to bring these drugs from home. Others do not, citing safety concerns.

If you have a separate Medicare drug plan, the coverage decision will be up to the insurer.  If the plan covers your maintenance drugs at home and agrees to cover them in the hospital, it will only pay prices negotiated by the plan with drug companies and in-network pharmacies. Most hospital pharmacies are out-of-network. So even if your drug plan covers these drugs, you may be left paying most of the bill.

Q: How do I know if I’m an observation patient and can I change my status?

A. The only way to know for sure is to ask.  Medicare does not require hospitals to tell patients that they are in observation status and that they will be responsible for paying any non-covered Medicare services. “Unless people are in an observation unit, the difference between observation and inpatient care is basically indistinguishable,” said Toby Edelman, a senior attorney at the Center for Medicare Advocacy.

Medicare does require hospitals to tell patients they have been downgraded from inpatient to observation.

If you believe you should be admitted, ask your doctor to change your status to inpatient. However, even if the doctor agrees, the hospital may be able to overrule that decision or Medicare can change it later when reviewing the claim. 

Q. What can I do if I’m about to be discharged or am already in a nursing home and I find out Medicare won’t cover my nursing home care?

A. If you can’t persuade the hospital to change your status, Edelman advises patients to file two kinds of appealsWhen you receive your Medicare Summary Notice, follow the instructions to challenge the charges from the hospital listed under Part B of the notice if you believe those services should have been billed as inpatient services. Also challenge any charges from the nursing home for outpatient services such as physical therapy.

If you do enter the nursing home, you may be billed for the care.  Ask the nursing home to submit a “demand bill” to Medicare. When it is rejected, you can appeal.  The Center for Medicare Advocacy’s online “self-help packet” offers more details about to how to challenge observation status.

Q. What is being done to fix the problem? 

A. Medicare’s recent revisions in payment rules are intended to ease the financial pressure on hospitals to put patients in observation care.

So far, Medicare has not made changes that would directly affect patients, for example, dropping the three inpatient day criteria for nursing home coverage, forcing hospitals to tell patients when they are getting observation care or requiring hospitals to allow patients to bring drugs from home.