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When is an In-Patient Not an In-Patient – Medicare and “Observational Status”

Sep 13, 2010 Recently I saw an elderly client whose husband was admitted first to a hospital and then to a nursing home. Specifically, after a fall he was hospitalized for three days during which time he was examined, tested and treated. A hospital physician discharged him to the nursing home where he received skilled care including daily occupational and physical therapy for 30 days.

The nursing facility filed for payment under the Medicare skilled care benefit since Medicare Part A covers skilled nursing facility care for up to 100 days. Medicare pays the first 20 days in full. Co-payments are required for days 21-100. Skilled care in a nursing facility is only covered after a three-day hospital stay.

Despite my client’s husband meeting these criteria, coverage was denied. Medicare stated he had not met the three day hospital stay requirement because he had not been ‘in the hospital’. Technically, they claimed, he had not received in-patient qualifying hospital care. But clearly he was hospitalized for three days. How does Medicare explain this absurd result?

A new “Observation Services” is a term used to describe the outpatient status of a patient who is admitted to a hospital, but not as an inpatient. Neither the Medicare statute nor the Medicare regulations define observation status. Medicare manuals do define observation services, as “ongoing short term treatment, assessment and reassessment that are furnished while a decision is being made regarding whether patients will require further in treatment as hospital inpatients”. Manuals provide that a Medicare beneficiary may not remain in observation status for more than 24 or 48 hours.

There has been a growing trend in the use of observation care. People who come to the hospital too sick to be sent home but not qualifying for inpatient care are placed in observation. The implications for beneficiaries include high cost sharing and the inability to qualify for Medicare-covered care in a SNF.

Why has this trend occurred? A Washington Post article of September 7, 2010 states that the, ‘increase may be explained by hospitals’ heightened worries of more-aggressive Medicare audits… The trend is emerging as hospitals cope with increasing constraints from Medicare, which is under pressure to control costs while serving more beneficiaries”. However, even Medicare recognizes that after two days in the hospital the patient is no longer receiving observational care.

My client will need to appeal through Medicare to get the observational status changed to in-patient care. This could be a long process.

What can you do if you are hospitalized? Ask first whether you are designated in-patient or in observational status. If you are designated as observational make sure your treating physician discusses the issue with the hospital to change the status. It is much easier to change the status when you are a patient in the hospital then days or even months later when you first find out that Medicare will not cover the care.

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