Warning: How Observation Status Affects Medicare Coverage

Jun 4, 2015

Recent reports suggest that hospitals have increasingly classified new patients as under observation (or outpatient status) to protect themselves against Medicare policies that prevent payouts to hospitals for excessive patient admissions. However, many of the patients under observation are being cheated out of thousands of dollars.

Inpatient vs. Outpatient: What is Covered?

Under federal law, Medicare won’t pay for post-hospital extended care services for patients who haven’t spent three consecutive nights in a hospital as an admitted patient. Anything short of that means patients are responsible for covering nursing home costs on their own, even if it was recommended by their physician. On top of that, patients will likely pay more for hospital care if they are considered an outpatient.

Observation care should be a short period where your hospital can observe your health to assess whether or not you should be admitted for inpatient care or if you can promptly be treated as an outpatient.

What’s tricky is that some observation care can look and feel just like inpatient care. For some patients it is really difficult to know the difference, but each have their own costly consequences.

Observation care and doctors’ services are typically covered by Medicare Part B, however patients could face higher costs all around if not labeled as an inpatient during their hospital stay. Medicare Part B generally only covers 80% of outpatient services after a patient has met their yearly deductible and the remaining 20% of costs is left up to the patient to pay. Also, Medicare Part B does not cover costs for routine medications. Medicare Part A, on the other hand, covers almost all inpatient services like nurses’ services, X-rays, and medications.

Two-Midnights Rule

So what’s been done to combat the growing number of observation patients? The Centers for Medicare & Medicaid Services is pushing for a new rule that may reduce the amount of Medicare patients classified as observation status, who face higher costs than admitted patients and also lose coverage for skilled nursing facility care.

What is being dubbed as a “two-midnights” policy, the rule requires doctors to admit patients if they expect those patients to need hospital care for longer than two nights.

As of now, the rule has now been postponed three times due to strong opposition by The American Hospital Association and patient advocacy groups. Hospital groups say quality care will suffer as doctors will be forced to focus on hours rather than patient needs. Patient groups would rather see reform to Medicare’s three-night-rule or elimination of the rule altogether.

Currently, the two-midnight rule has been postponed until September 2015.

How To Combat Observation Status

Not all doctors are required to tell patients they are under observation, so many don’t know they aren’t receiving inpatient services until after they have been released. And hospitals are prohibited from reclassifying patient status after the patient has been released.

The best way to keep yourself from surprise costs is to stay informed. Ask about your status every day. You can be upgraded to inpatient and downgraded to outpatient on a daily basis. Recruit your own physician in an effort to qualify any reasoning for upgrading your status to inpatient, or have your status reconsidered by the hospital. Some may find success by enlisting the help of elder law attorneys or geriatric care managers. While stressful, it may be easier to fight for inpatient status during a hospital stay than to appeal these decisions later.

If you should have to formally appeal Medicare’s decision to not fully cover hospital costs or a post-hospital stay at a nursing home, just be persistent. The appeals process will not be quick or easy, and you may be faced with denials at the outset.

Many have recruited the help of elder law attorneys to help with the convoluted appeals process. An attorney with experience in Medicare issues can help you appeal fight inappropriate charges under Medicare Part B, help you request reimbursement for nursing home costs, and help with the various appeals that may come with each of these processes.

Need help with your Medicare coverage? Contact the Law Offices of Christina Lesher at (713) 529-5900 today. 

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