While many seniors and their families may not be aware of it, consumer groups, hospitals, and nursing homes are fighting a major battle with Medicare over how the federal program pays for patients who are cared for in a hospital, but not admitted to the hospital. Seniors caught in this regulatory purgatory may have to pay thousands of dollars for care they receive after they are discharged.
How can a patient receive care in a hospital but not be admitted? It happens when the patient is treated under what Medicare calls “observation status.” These stays are usually for 48 hours or less but can be longer. Most troubling, a patient’s status can be changed while she is in the hospital and without her knowledge.
While observation stays are still infrequent, they have become much more common in recent years. According to a new study by researchers at Brown University, as many as one million patients were kept under observation in 2009, one-third increase from 2007. Medicare itself estimates that the percentage of patients under observation for 48 hours or more increased from 3 percent in 2006 to 7.5 percent in 2010.
Why does it matter so much? In part it’s because Medicare has another regulation called the “three-day rule” that says it will not pay for post-acute care or rehabilitation services in a skilled nursing facility unless a patient has first been admitted to a hospital for at least three days. The key word is “admitted.” Time under observation status does not count towards those three days, even though a patient may be in a hospital bed, receiving care from hospital staff, or getting tests and medications administered by hospital employees.
As a result, if an observation status patient receives additional treatment at a nursing facility, the patient, and not Medicare, must pay for that post-discharge care. And costs can easily reach tens of thousands of dollars.
At first glance, observation status makes sense. Imagine the common situation of an 85-year old suffering from chest pain who is brought to the emergency department of her local hospital. The ER docs find no evidence of a heart attack but would like to keep an eye on her. She probably doesn’t need to be admitted to the hospital, which can be very expensive. So, she remains under more cost-effective observation.
In addition, there have been abuses by nursing homes that send patients to the hospital so they can restart the three-day clock and get another round of Medicare payments. The problem is there are no clear clinical guidelines for when a patient should be kept under observation. As a result, many observation decisions are driven, not by doctors, but by Medicare fraud auditors who can deny payments for patients they deem improperly admitted.
As a result, a wide range of advocacy groups, from the nursing home industry to consumer groups such as the Center for Medicare Advocacy (CMA) are urging Medicare to revisit the observation rules. In Nov., 2011, CMA sued Medicare to block the current system. At the same time, CMA and groups such as the American Health Care Assn. (which represents mostly for-profit nursing facilities) have asked Medicare to count all hospital days—including time under observation—towards the three day rule. Bipartisan bills in the House and Senate would accomplish the same goal.
As Medicare shifts its payment system to encourage providers to integrate care across settings or fully manage care, rules such as the three-day standard are likely to become obsolete. But until they do, expect this high-stakes battle to continue.
(Full disclosure: I am an unpaid board member of a community hospital)