Observation vs. Admission: The Impact of Hospital Stay Classification

Elder law attorneys nationwide have seen a rise in the “observation” classification of individuals entering hospitals.  This recent trend towards observation status rather than the traditional “admitted inpatient” status has a direct impact on the amount an individual will be required to pay for potential rehab or long term care upon a discharge from the hospital.  If a patient is placed on observation status and is not actually admitted to the hospital, Medicare will not pay for subsequent services in a rehab or skilled nursing facility and the patient will be responsible for the $300+ daily private pay rate.

Medicare requires an individual to be admitted to a hospital for at least three consecutive days, not counting the day of discharge, in order to meet the Medicare criteria for coverage of post-acute care in a skilled nursing facility (“SNF”).  The level of care received by patients in observation status is often indistinguishable from care received by admitted inpatients.  The designation of a patient as an outpatient (covered under Part B of Medicare) compared to an inpatient (covered under Part A) can result in the patient being charged for some services received in the hospital that would otherwise be covered, including their prescription medications.  Furthermore, patients will be responsible for their entire subsequent SNF stay, having not satisfied the statutory three-day inpatient hospital stay requirement.

The classification of observation status and the amount of time patients spend in observation status have both increased significantly in the last few years.  The Center for Medicare Advocacy (“CMA”) has received reports about patients nationwide whose entire stay in a hospital, including stays in excess of 14 days, have been classified by the hospital as outpatient observation.  (See, e.g., the Center’s Weekly Alert “New Study: CMS’ New 2-Midnight Rule Increases Use of Observation Status” (February 20, 2014))

A motivation for the increased use of observation status may be the threat of punitive action by Medicare Recovery Auditors.  If an auditor rejects a hospital’s admission of a patient as an admitted inpatient, the hospital loses reimbursement for almost all related services.  Penalties imposed on hospitals that readmit patients who return to the hospital shortly after discharge from a prior inpatient admission also foster the use of observation status.

Change may be on the horizon.  The Improving Access to Medicare Coverage Act of 2013 (H.R. 1179/S. 569), introduced by Reps. Joe Courtney (D-CT) and Tom Latham (R-IA) in the House and co-sponsored by Sens. Sherrod Brown (D-OH) and Susan Collins (R-ME) in the Senate, would change the admission standard to count outpatient “observation” time spent in a hospital toward the three-day inpatient hospital stay required before Medicare pays for subsequent SNF or rehabilitation services.  The bill has garnered the support of 151 cosponsors in the House and 25 cosponsors in the Senate.  CMA and the National Academy of Elder Law Attorneys (NAELA) have also brought together a broad coalition of organizations representing consumers, nursing homes, physicians, and other stakeholders supporting a bipartisan, common-sense approach to help Medicare beneficiaries who are hospitalized in observation status. (See NAELA’s webpage devoted to observation status.)Duck

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About Jason Port

Jason is an associate in the firm's Trusts and Estates Group, Family Law Group and Land Use Group. He focuses his practice on estate planning, estate administration, guardianships, conservatorships, probate litigation, elder law matters, family law controversies and residential real estate transactions.
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