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Why Being Classified Under “Observation” in a Hospital Mean Seniors Pay Thousands More

On Behalf of | Feb 24, 2014 | Trusts

In the past three years alone, the number of Medicare patients in the hospital being classified as an outpatient under “observation” rather than being formally admitted as an inpatient has jumped twenty-five percent according to a recent study conducted by Brown University. Even without the study, the fact that this is occurring more frequently can readily be attested to by the many elder law attorneys 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 as under “observation” rather than as an inpatient who 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, 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 he or she needs to be discharged from the hospital to a skilled nursing facility and/or a rehabilitation facility. If the patient has been classified as an inpatient while hospitalized and has spent three nights in the hospital, his or her stay at a skilled nursing and/or rehabilitation facility upon hospital discharge would be covered in full for the first 20 days (from day 21 to 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). With the average cost of a skilled nursing and/or rehabilitative facility at $369.00 per day, it is easy to see why classifying a patient as being under “observation” would cost the him or her thousands more if rehabilitative services are required after discharge.

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 2011 by the Center for Medicare Advocacy and the National Senior Citizens Law Center to end these coverage methods. In the meantime, however, 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 skilled nursing and or rehabilitative services will be required upon discharge.