Hospitalized but 'under observation'? Seniors, beware

CHICAGO Thu Jan 23, 2014 12:52pm EST

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CHICAGO (Reuters) - A growing number of seniors who think they've been hospitalized are finding that they really weren't.

The problem isn't memory loss, confusion or dementia. Instead, seniors on Medicare who did in fact spend multiple nights in the hospital are learning later on that they weren't formally admitted. Instead, they had "observation status" - a Medicare classification that can cost seniors thousands of extra dollars if they need post-hospital nursing care.

Medicare covers the first 100 days of care in skilled nursing facilities, but only for patients who were first formally admitted to a hospital for three consecutive days.

But federal data shows that the number of Medicare patients classified as under observation has jumped sharply in recent years, to 1.4 million in 2011 from 920,000 in 2006. And the trend isn't limited to patients who spend short periods of time in the hospital: The number of observation stays lasting more than 48 hours stood at 112,000 in 2011, compared with just 27,600 in 2006.

The problem stems from a well-intentioned effort by Medicare to control costs through a program that audits hospitals for possible overpayments, which began during the George W. Bush administration. When that program identifies improper admissions, hospitals must refund all the Medicare payments it received, and that has spurred many to be more cautious about admissions they think could be challenged. Hospitals receive lower reimbursements for observation status patients - they are covered under the Part B outpatient program, rather than Part A, hospitalization. But at least they know they'll get something.

The situation prompted the non-profit Center for Medicare Advocacy to file a class action in 2011 (Bagnall v. Sebelius) to force the federal government to change its policy - a legal battle that it has been losing in the lower courts, but continues to appeal. It has also fueled a regulatory skirmish in Washington that is intensifying, with a growing coalition of seniors, advocacy groups and healthcare providers pushing for reform on Medicare rules.

There's also momentum in Congress for legislation to straighten out the mess. Senator Sherrod Brown (D-Ohio) is sponsoring legislation that would force Medicare to count all overnight hospital stays as formal admissions, and similar legislation has been introduced in the House of Representatives.

Medicare is set to apply a new rule in April that would require doctors to admit people they expect to stay more than two midnights, and to classify anyone else as an observation patient. But the change is getting blowback from a large coalition of healthcare providers and advocacy groups, who are seeking a delay in its implementation. They argue that it will be very difficult to comply with the rule, and that it would arbitrarily reward patients who happen to arrive at the hospital at certain times of day. And it doesn't alter the three-day rule.

"The new rule doesn't really fix the problem," says Joe Baker, president of the Medicare Rights Center, a non-profit consumer advocacy group.

Observation status can affect any senior using traditional fee-for-service Medicare; patients using managed-care Medicare Advantage programs, which provide all-in-one care, are subject to whatever rules are set by their insurance plan providers. But for seniors vulnerable to the observation status problem, the stakes are high.

When a patient who meets Medicare's three-day formal admission requirement moves to a skilled nursing facility, the program covers 100 percent of the first 20 days. Patients are responsible for $152 daily co-pays for the remaining 80 days, if necessary.

Patients leaving the hospital for a nursing facility after an observation stay pay the full cost out of pocket. The daily rate for skilled care in a private room averaged $230 last year, according to an annual survey conducted by Genworth Financial, although the cost can go much higher - $344 in New York state, for example. At that rate, a New York patient covered under admission status who needed a 100-day stay in a skilled facility would pay $12,160 out of pocket, compared with $34,440 for an observation-status patient.

Medicaid would cover the stay if the patient met the program's low-income requirements. The only other option would be private long-term care coverage, although private policies often have "elimination" features (deductibles) that require patients to pay the first 90 days out of pocket, according to the American Association for Long-Term Care Insurance.

It's difficult for seniors and their families to protect themselves against this risk. Hospitals generally aren't required to notify patients that they're on observation status, although the state of New York recently passed legislation requiring notification of patients. It's hardly something most families would think to check during a health crisis - and it makes no sense that a patient spending multiple days in the hospital hasn't been admitted.

Toby Edelman, senior policy attorney for the Center for Medicare Advocacy, urges families to ask their doctors about admission status, although she cautions that physicians may also not know whether the patient is on observation status. "If you do find out that the person is on observation status, do what you can to get it changed at the time. Get your doctor to go to bat for you."

Patients who arrive at a nursing home after an observation-status hospital stay will have to appeal to Medicare later. That can be done through Medicare's standard appeals process, but it's not easy. "The process is lengthy, and it doesn't make a lot of sense to people," Edelman says.

The Center for Medicare Advocacy has a self-help packet on its website that explains the observation-status issue in detail, and provides detailed guidance for filing appeals (bit.ly/KTa5LJ).

(The opinions expressed here are those of the author, a

columnist for Reuters.)

For more from Mark Miller, see link.reuters.com/qyk97s

(Follow us @ReutersMoney or here

Editing by Douglas Royalty)

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