NCPA - National Center for Policy Analysis

The Cost of "Observation" Status for Medicare Recipients

November 6, 2013

When in the hospital, more Medicare recipients are being held for observation rather than being formally admitted, a status that can leave them with big bills for items including rehabilitation services, says the Wall Street Journal.

Hospitals and doctors place patients on observation care to give doctors time to evaluate whether they require an inpatient stay. But in recent years, the use of observation care has grown as regulators penalize hospitals for admitting patients that auditors say should receive outpatient care.

  • From 2004 to 2011, the number of observation services administered per Medicare beneficiary rose by almost 34 percent, according to the Medicare Payment Advisory Commission, while admissions per beneficiary declined 7.8 percent.
  • That's an imperfect comparison, but it's the way the Department of Health and Human Services' Office of Inspector General reports the numbers.
  • The number of Medicare beneficiaries grew 13 percent in the period, according to the nonprofit Henry J. Kaiser Family Foundation.

Moreover, upon discharge, observation patients can get hit with big bills for rehabilitation care.

  • While Medicare pays for up to 20 days of rehabilitation at a skilled-nursing facility, a patient must spend three consecutive nights in the hospital as an inpatient to qualify.
  • In 2012, 617,702 hospital stays of three or more nights failed to qualify because some or all of that time was on observation status.

Consumer advocates say Medicare patients should ask whether they are considered inpatient or outpatient. Those on observation care who suspect they will need rehabilitation services should ask their doctors for help in getting the decision reversed before they are discharged, says Toby Edelman, a senior policy attorney with the nonprofit Center for Medicare Advocacy.

Source: Anne Tergesen, "Beware Medicare's 'Observation' Status," Wall Street Journal, October 19, 2013.


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