Hospital Stay: Inpatient or Observation Status? The answer could cost you thousands!

Medicare only pays for care in a skilled nursing facility when a patient has spent at least three consecutive days in a hospital (not including the day of discharge) prior to being admitted to the nursing home. In this instance, Medicare may pay up to 100 days of rehabilitation and/or skilled nursing care.

Thousands of people are discovering that three days in the hospital may not qualify them for the nursing home benefit because the hospital has placed them on “observation status,” also known as “observation care.” If that is the case, it means that the hospital never admitted them as an inpatient, and thus, they do not meet Medicare's “three hospital-day” criteria to trigger skilled nursing care coverage.

When you receive “observation care” at a hospital you are considered an outpatient. It doesn't matter if you're in a hospital room receiving all the care and tests that you normally have experienced as an inpatient before. Medicare expects patients to remain in observation status between 24 to 48 hours but there are no rules governing just how long a patient can remain in this “No Man's Land.”

The Center for Medicare Advocacy, a national non-profit group tracking “observation care” cases has found beneficiaries remaining in this status for as long as 14 days. What's alarming is that these patients were never told that they had not been admitted to the hospital as an inpatient. Only when a hospital utilization review committee reverses a physician's order to admit a patient, are they required to notify the patient that he or she is receiving observation care as an outpatient.

Besides not receiving nursing home care should you need it, this outpatient status forces you to pay out-of-pocket for all the medications you are given at the hospital. Medicare Part B, however, will pay for physician and hospital outpatient services (e.g. lab tests, EKGs, surgery, X-rays).

So what's going on? Competing interests are at play. While Medicare faces looming costs and burgeoning numbers of beneficiaries, it's becoming much more aggressive as to what is considered a medically necessary hospital admission. If the hospital doesn't meet strict criteria, then Medicare won't reimburse for the care. So hospitals are cautious as to who is admitted and it shows: claims for observation care by hospitals lasting more than 48 hours has tripled in recent years.

Experts and consumer advocates expect that the use of observation status by hospitals will escalate when new legislation takes effect financially penalizing hospitals for patient readmissions following a hospital stay that indicate, in Medicare's view, inadequate patient care, in the first place. Thus, less hospital admissions leads to reduced exposure to readmission penalties. Physicians, caught in the middle, report that for them it's not about reimbursement or readmission penalties: Observation care for elderly patients, who aren't stable enough to go home nor sick enough to warrant a hospital admission, provides a safe haven while their frail patients stabilize.

What can you do? First off, every Medicare beneficiary receiving care in a hospital should ask if they are an inpatient or an outpatient under “observation status.” Don't assume that if you are given a bed, a nifty wrist band and a room or stayed overnight that you have been admitted. So, ask the physician treating you or other hospital officials (Case Manager or Patient Advocate) as to your status and why.

The Center for Medicare Advocacy and others offer a number of steps for you to consider:

1. If you've been told you are on observational status, contact your personal physician and ask if he or she would call the hospital to request a change in status. Be aware, however, that your doctor can't over rule the hospital.

2. If you are receiving observation care, ask the hospital to provide you notice (Advance Beneficiary Notice) in writing as to your level of care and why.

3. If you enter a skilled nursing facility after discharge from the hospital, ask the nursing facility to bill Medicare. If Medicare denies the claim because you did not meet the three day rule due to observational status, appeal it. Call Medicare at 800-633-4227 for more information.

4. If the nursing home won't bill Medicare, then complete a “Notice of Exclusions from Medicare Benefits: Skilled Nursing Facility” form and ask the facility to submit it to Medicare so you can get an official decision as to your coverage (or lack of it). Once you get the decision, appeal it, if it is not in your favor.

5. If you've been discharged from the hospital to nursing home care, be sure to review your Medicare Summary Notice (explanation of benefits) to see if your coverage has been limited due to observation status. Appeal to the Medicare billing contractor, and if it's denied, appeal again.

6. For an overview of inpatient and observation care from Medicare, read their brochure, “Are you a Hospital Inpatient or Outpatient?”

There has been such an uproar over this issue, that Congress is considering legislation to deem Medicare beneficiaries in hospitals who are under observation care as inpatients so that their nursinghome coverage won't be jeopardized as long as they meet the three-day rule.

Tip: You can receive free advice from trained volunteers regarding Medicare and insurance issues by contacting Eldercare Locator 800-677-1116 and ask for the State Health Insurance Assistance Program (SHIP) nearest you.