Under Observation: How Hospitals Cost Seniors

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Every year, tens of thousands of senior citizens believe that they have been admitted to the hospital when they have not. This mistaken belief isn’t caused by dementia or some other neurological deficit. In fact, it’s a perfectly logical belief, often shared by their families, given the circumstances.

You see, these individuals go to the hospital for a problem, and at some point, they’re moved out of the ER to a bed upstairs in the hospital—what most of us would consider an admission, especially when they remain there for several days or even weeks. But officially, their status is not “admitted,” but “under observation.”

Why does this matter, as long as the patient is getting the needed tests and treatment? Because patients who are admitted are considered inpatient, and patients who are under observation are considered outpatient. This, in turn, impacts how their hospital stay (and aftercare) is paid for (or not) by Medicare.

Medicare and the Increase in “Observation” Stays

If you have Medicare, you probably know that Medicare Part A covers the cost of inpatient hospital stays. Outpatient care, including care received while “under observation” at a hospital, is covered under Part B. These observation stays have increased dramatically in number over the last several years, and the result is often higher out-of-pocket expenses to the patient, who may not realize they weren’t officially admitted to the hospital until they receive their bill—and perhaps not even then. Hospitals are generally not required to communicate, in writing or otherwise, whether a patient’s status is inpatient or outpatient.

Higher out-of -pocket costs for the hospital stay are often just the beginning of the financial strain for patients who were kept under observation. That’s because if, as often happens, they require nursing home care after their discharge, their hospital status directly affects whether Medicare will pay for that care.

Medicare doesn’t pay for long-term nursing home care, but it will pay in full for the first 20 days of skilled nursing care after a hospital discharge, and will then cover most nursing home costs up to 100 days. The catch? This is only true if the patient spent three consecutive days on inpatient status before their hospital discharge. Otherwise, patients are on their own as far as paying the cost of a nursing home, which in this country averages over $225 per day.

A patient could spend a week in a hospital, believing they are inpatient, get discharged to a nursing home, spend three months there, and then learn that their care was not covered.

So a patient could spend a week in a hospital, believing they are inpatient, get discharged to a nursing home, spend three months there, and then learn that their care was not covered. Perhaps even worse, a patient who spends a week in the hospital and is aware that they are are under observation (outpatient) may refuse to be transferred to needed nursing home care upon discharge because they are unable to bear the costs.

To add insult to injury, while most denied Medicare claims are appealable, the determination of whether one was an inpatient or an outpatient under observation has not been appealable. However, this may be about to change.

Changes on the Horizon for Patients

Patients may, in the future, be able to appeal their outpatient stays for observation. A federal judge in Connecticut on July 31, 2017 certified a class of plaintiffs in a a class-action lawsuit. The class is comprised of Medicare recipients who received observation services in a hospital, technically as outpatients, since January 1, 2009.

This certification will allow hundreds of thousands of people to join a lawsuit against the Centers for Medicare and Medicaid Services. Success at the 2018 trial will mean that patients can, for the first time, appeal the determination that they were under observation. The class certification is not a guarantee that patients will be able to have their outpatient classification changed, but it is a step in the right direction.

Another solution might be the Improving Access to Medicare Coverage Act. This legislation has been introduced in each Congress since 2010 by Rep. Joe Courtney of Connecticut. The Act would require that any consecutive three days spent in a hospital be counted toward the Medicare requirement for receiving nursing home benefits, without regard to whether the stay was considered inpatient or outpatient. Despite bipartisan support and the endorsement of the AARP and AMA, the legislation has not gained traction. For the moment, the possibility of being able to appeal a determination of outpatient status in the future appears to be the best hope for people whose hospital-based “observation” has cost them dearly.

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