Medicare: Inpatient or Outpatient?

http://www.aarp.org/health/medicare-insurance/info-08-2012/medicare-inpatient-vs-outpatient-under-observation.html

by: Patricia Barry | from: AARP Bulletin | October 2012

Jean Arnau spent five days in the hospital with a fractured spine — lying in a hospital bed, wearing a hospital gown and ID bracelet, eating hospital food and receiving regular nursing care.

But when she was discharged and needed to transfer to a skilled nursing facility for rehabilitation, her family learned that she had never been formally admitted as an inpatient to the hospital at all. Instead, she'd been classified as an outpatient under "observation" — a status that would cost her thousands of dollars.

Most patients would regard as meaningless the seemingly slight distinction between the two labels — after all, they're getting exactly the same kind of care. But it can have costly consequences.

Under the rules, Medicare picks up the whole tab for the first 20 days in an approved skilled nursing facility for rehab or other care, but only if someone has spent at least three full days in the hospital as an admitted patient. If instead a patient has been under observation — for all or part of that time — he or she is responsible for the entire cost of rehab.

[Note that this situation applies only to Medicare coverage in skilled nursing facilities — which are usually nursing homes — and not to rehabilitation hospitals or inpatient rehabilitation facilities. Such places have different rules to qualify for Medicare coverage, but coverage is not affected by previous observation status while in a regular hospital.]

Arnau, an 84-year-old widow from Narragansett, R.I., got hit with a large bill. The skilled nursing facility she went to charged her $3,900 for a two-week stay. And although she had a Medigap supplemental policy, this insurance does not pay the out-of-pocket costs of services that Medicare does not cover.

Her family only learned about the problem the day Arnau left the hospital, says her daughter Mimi Auer, who is considering appealing the decision. At first she thought it was a mistake. But staff at the nursing facility told her they'd had four cases like her mother's just the previous week. "Four cases of the same situation, [in which Medicare patients] had to pay for the nursing home because they'd been on observation in the hospital," Auer protests. "What's going on here?"

Over the past several years, hospitals throughout the country have increasingly classified Medicare beneficiaries as observation patients instead of admitting them, according to researchers at Brown University, who recently published a nationwide analysis of Medicare claims in the journal Health Affairs. The results showed that in just three years, 2007 through 2009, the ratio of Medicare observation patients to those admitted as inpatients rose by 34 percent.

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The suit alleges that the practice of putting patients in observation status not only denies them coverage for post-hospital rehab care in a skilled nursing facility, so they must either pay the full bill — more than $30,000 in the case of two plaintiffs — or forgo treatment. It also classifies them as outpatients while they're in the hospital. Therefore, their Medicare coverage comes not under Part A (hospital insurance) but Part B (which normally covers doctors' services and outpatient care). For some patients, this can also mean paying more out of pocket — especially if they need prescription drugs that, in this situation, would be covered under Part B and not under Part A or even the Medicare Part D drug benefit.


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many experts suggest that hospitals are placing more and more patients under observation to protect themselves against new policies that penalize hospitals for unnecessary admissions and frequent readmissions of the same patient.

In an effort to rein in spiraling costs, Medicare is now taking a tougher line with hospitals, sending auditors to investigate not only fraud but also cases in which the agency thinks that "medically unnecessary" hospitalizations have occurred. Also, to improve the quality of care, Medicare will soon start penalizing hospitals that readmit patients in less than 30 days — raising the question of whether hospitals might label people as observation patients so that they cannot be counted as readmissions if they happen to return. Cost-control measures are "perfectly understandable," says Zhanlian Feng, the Brown University study's lead author. "On the other hand, those policies may have unintended consequences" that affect patients adversely.

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Meanwhile, under the status quo, hospitals are allowed to place patients in observation at any time during their hospital stay — even retroactively. Hospital staff only are required to inform patients of their status before they leave the hospital.

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Here's what you can do to help avoid big bills, however, if you, or someone you're looking out for, is placed under observation in the hospital:

http://www.aarp.org/health/medicare-insurance/info-08-2012/medicare-inpatient-vs-outpatient-under-observation.3.html