Going into the hospital is stressful enough. But if you’re a senior on Medicare, and you stay at a hospital under “observation status,” you may end up with serious financial pain, too.
That’s because Medicare may not cover some benefits — including post-hospital rehabilitation care in a nursing home — if a hospitalized patient is classified as being under observation vs. being admitted as an inpatient.
Medicare Part A, which pays hospital costs, requires beneficiaries to have three consecutive inpatient hospital days to qualify for nursing home care. Observation days don’t count toward that total.
It’s a big concern in Florida, where state advocacy groups and health coalitions have pushed for observation status reform. They joined the efforts of federal nonprofits, too, like the Washington, D.C.-based Center for Medicare Advocacy.
“This issue is so preposterous to me. It’s a Medicare billing issue, not a care issue,” said Toby Edelman, senior policy attorney for the Center for Medicare Advocacy. “The stories we get are completely ridiculous.”
Observation status was created for patients considered not sick enough to be fully admitted but not well enough to go home. It allows a doctor, who orders observation, to run tests and monitor patients to decide whether they should be hospitalized. Most Medicare patients on observation enter through the emergency room, according to experts.
The designation, however, has increased in popularity in recent years. A federal analysis showed the number of observation days doubled in eight years, from 932,000 in 2006 to almost 1.9 million in 2014.
One reason is Medicare’s “two-midnight” rule, implemented in October 2013, that stated many patients expected to stay in the hospital fewer than two nights should be under observation instead of admitted as inpatients, according to Monica Corbett, spokeswoman for the Florida Hospital Association. The rule came from the Centers for Medicare and Medicaid Services’ (CMS) audits that showed some inpatients were receiving care that was not medically necessary, driving up costs.
Deborah Franklin, senior director of quality affairs for the Florida Health Care Association — the industry group for nursing homes and care facilities — said hospitals also are nervous about Medicare’s readmissions policy, created under the Affordable Care Act. The regulation, designed to keep chronically ill people from cycling in and out of a hospital, cuts facility reimbursements if too many patients are being readmitted within 30 days of discharge.
While the loss of short-term nursing home coverage is the biggest shock for observation patients, others who went home after their hospital stay also were surprised when their Medicare bills arrived.
Observation patients’ self-administered medications, such as blood pressure pills, aren’t covered when they’re in the hospital, which a federal report estimated adds an average of $207 to their out-of-pocket costs.
Sean Cavanaugh, a CMS deputy administrator, in 2015 told members of the Senate Special Committee on Aging that the agency was “pushing very hard” on hospitals to better educate their patients about observation status, according to news stories. But he said it was unclear if CMS could mandate hospitals do more.
CMS officials, responding to questions from Sun Sentinel last week including why Medicare did not cover nursing home rehabilitation care related to observation stays, sent links to CMS observation fact sheets and policy changes.
Federal lawmakers and health-care advocates have grown increasingly concerned about observation status use, as they continue to hear stories from seniors and their families. “I’ve talked to hundreds of people. They don’t know who to complain to,” said Edelman, of the Center for Medicare Advocacy.
Edith Gooden-Thompson, Broward County coordinator for the Serving Health Insurance Needs of Elders (SHINE) program, said her Medicare counselors receive calls from seniors who are stunned when they receive the larger-than-expected hospital bills due to their observation status.
“We can’t really do much for them except be compassionate listeners,” said Gooden-Thompson, whose program’s volunteers help seniors with Medicare problems and appeals.
Recently, two of her volunteers dealt with the situation themselves, she said.
Both had family members who came in through the emergency room, she said, and neither was aware they had been on observation status. After discharge, Gooden-Thompson said, the families received letters notifying them their loved ones had been under observation status and they probably would be billed for additional services.
In 2015, the Florida Health Care Association was among those that pushed for a state law requiring that hospitals include a patient’s observation status in the discharge paperwork.
At that point, however, patients are “heading out the door. I’m not sure the average person would see it,” Franklin said.
Oftentimes, patients find out they’re not covered at a rehabilitation facility once they arrive there, she said.
“It’s a hard thing for the families. They assume the patient has qualified for care. The skilled rehab facility gets to be the bad guys and deliver the bad news,” Franklin said.
A new federal regulation that aims to strengthen Medicare patient’s rights to information, which some Florida hospitals began testing last year, goes into full effect next month. As of March 8, all hospitals must give Medicare patients who stay on observation status for more than 24 hours a form known as the Medicare Outpatient Observation Notice.
The notice must be delivered in writing as well as verbally, and requires a patient or caregiver’s signature. It also must explain why the person was classified for observation, and warn these patients that they may have additional out-of-pocket costs or be ineligible for Medicare nursing home reimbursement after being discharged.
Some advocates question how much good these notices will do, however. Hospitals have 36 hours to issue them, which doesn’t give patients much notice.
However, Desirae Mearns, the SHINE liaison project director at Your Aging and Disability Resource Center in West Palm Beach, said she thinks the notice will encourage seniors and their families to learn about the difference between observation status and inpatient care, and advocate for themselves.
“We’re excited about the notice, and we are going to educate seniors about it,” Mearns said. “Providers sometimes assume our senior population won’t question certain things.”
The Center for Medicare Advocacy has started a public education campaign, advising seniors to ask if they’re on observation status as soon as the hospital staff suggests they stay for additional testing or monitoring. If the answer is yes, the center advises patients to ask their doctor if they should be admitted as inpatients.
In December, the U.S. Health and Human Services Office of the Inspector General released a report stating that the Center for Medicare and Medicaid Services should find ways to protect observation patients from paying more than inpatients for the same services, as well as analyze the impact of their being denied nursing home care.
The Inspector General found that the 9.1 million inpatient stays in 2014 were a 3 percent decrease over the previous year, while the 3.4 million observation stays had increased by 8 percent over that year.
The most common reasons for Medicare outpatient stays longer than two midnights were chest pain, digestive disorders and fainting, in that order, the report said.
This month, the Center for Medicare Advocacy received a federal judge’s permission to proceed with a class action lawsuit that would allow Medicare patients the right to appeal their observation classifications. The plaintiffs, including a Delaware woman who was denied nursing home coverage despite being hospitalized for six nights, were forced to spend up to $30,000 each for their post-hospital care.
Edelman said she was particularly troubled by the latest Inspector General’s findings that hospitals are billing for a large number of long observation stays, adding to patients’ in-hospital costs as well as shutting them out from having their nursing home rehabilitation care coverage.
“People may have to pay many thousands of dollars upfront,” Edelman said. “They’re told to go to the nursing home and bring their checkbook.”
What you can do
Ask if you are going to be on observation, rather than admitted as an inpatient, if you are in the hospital. If you are on observation, ask your doctor if you should be admitted.
Patients can be switched on and off observation status during a single stay. So ask about your status every day you are in the hospital.
You can fight observation status extra charges — although it’s hard and you have to pay the bill first, then appeal for reimbursement. To get help, contact Florida’s SHINE (Serving Health Insurance Needs of Elders) Medicare counseling program: 800-963-5337, floridashine.org.
For more information or to tell your observation status story, contact the Center for Medicare Advocacy: 860-456-7790, medicareadvocacy.org.
firstname.lastname@example.org or 954-356-4295
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