Why Being Classified Under "Observation" While in a Hospital Means Seniors Pay Thousands More

By: Anthony J. Enea

Over the last 3 years Medicare patients in a hospital being classified as an “outpatient” under “observation” rather than being formally admitted as an “inpatient” has jumped twenty-five (25%) percent according to a recent study conducted by Brown University. Even without this recent study, the fact that this is occurring more frequently can readily be attested to by many elder law attorneys who are witnessing their clients having to personally pay for the costs of their rehabilitation in a skilled nursing care facility rather than said costs being paid for by Medicare.

Generally, it is not unusual for a hospital to classify a patient in their Emergency Department to be a patient under “observation” and not an “inpatient” that has been formally admitted. However, it appears that in order to avoid penalties being imposed by Medicare as a result of the re-admission of the patient, and to avoid costly audits by Medicare of their admission claims, hospitals are keeping Medicare patients in “observation” status rather than formally admitting them as an “inpatient”. As a result of this, the Medicare patient’s hospital stay is covered by Medicare Part B rather than Part A, which unfortunately results in the patient having more out of pocket costs.

This additional cost to the senior is significantly compounded if the senior needs to be discharged from the hospital to a skilled nursing facility and/or a rehabilitation facility. If the hospital patient has been classified as an “inpatient” while hospitalized and has spent three (3) nights in the hospital, then in that event upon, his discharge from the hospital to a skilled nursing and/or rehabilitation facility his or her stay in said facility would be covered in full for the first 20 days, and from day 21 to day 100 Medicare in New York will pay for everything except $144.50 per day as long as skilled nursing and/or rehabilitation services are required by the patient. With the average cost of $369.00 per day in a skilled nursing and/or rehabilitative facility, it is obvious that the classification of the patient as being under “observation” can result in thousands of dollars of additional costs to a patient requiring skilled care and/or rehabilitative services upon his or her discharge from the hospital.

Medicare’s pressure upon the hospitals to classify a patient as under “observation” stems predominantly from the fact that the reimbursement to the hospital for the patient in “observation” status is one-third of what it is for an “inpatient”. Clearly, this is a significant financial consideration for both Medicare and the hospital. The pressure upon the hospital to make the determination that the patient is under “observation” is further complicated by the fact that if Medicare determines the hospital incorrectly classified the patient as an “inpatient” rather then under “observation” the hospital will be on the hook for the cost of the services they rendered to the Medicare patient. Clearly, the hospital is not in an enviable position. One could only surmise that this will become even more perilous for hospitals and seniors once the Patient Protection and Affordable Care Act (“Obamacare”) is fully implemented.

Fortunately, there is federal litigation pending which was filed in November of 2011 by the Center for Medicare Advocacy and the National Senior Citizens Law Center to end these coverage methods. In the meantime it is important that Medicare recipients be vigilant as to the status of their admission and with the help of their physicians insist that they be classified as an “inpatient.” This is of particular importance if the senior will require skilled nursing and or rehabilitative services upon discharge.

Anthony J. Enea, Esq. is the managing member of the firm of Enea, Scanlan & Sirignano, LLP of White Plains, New York. He also has an office in White Plains and in Somers, New York. His telephone number is (914) 269-2367.