New Report Highlights Problems Of Hospital ‘Observation’ Stays

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Medicare patients had more than 600,000 hospital stays in 2012 that lasted three nights or more but did not qualify them for follow-up nursing home care, according to a new report by the U.S. Department of Health and Human Services’ Office of Inspector General (OIG).

Although the report does not include historical data, it indicates that hospitals in the U.S. increasingly are designating multi-day stays as outpatient or “observation status” visits, rather than inpatient admissions. In all, Medicare beneficiaries had 1.5 million hospital stays in 2012 that were classified as observation visits, with more than a third of them lasting two nights or more.

The “observation status” designation – which often deprives Medicare recipients of coverage for follow-up nursing home care – is being challenged in a lawsuit in U.S. District Court in Hartford and in legislation proposed by Democrat U.S. Rep. Joe Courtney, who represents the 2nd Congressional District.

Many Medicare beneficiaries who come to hospitals in emergencies are classified as observation patients, even though the care they receive may be indistinguishable from the care received by patients classified as inpatients. Under current rules, Medicare will not pay for a stay in a skilled nursing facility after hospitalization unless the beneficiary has been classified as an inpatient for at least three consecutive days.

While Medicare officials have proposed revisions to the rules that they say will set clearer benchmarks for inpatient stays, elder-care advocates say the changes will not resolve problems stemming from the observation status designation.

The OIG report indicates that the designation options used by hospitals have significant cost consequences for patients. For more than 2,000 outpatient and observation stays last year, patients were liable for $22 million in follow-up nursing home charges that Medicare would not cover, the report says. At the same time, Medicare improperly paid out $255 million for nursing home care for patients who should not have been eligible for such coverage, the OIG said.

OIG inspectors found that there were few differences between patients who were admitted for short inpatient stays, those admitted for long outpatient stays, and those placed on observation status. They said their review raised concerns about patient equity in accessing post-discharge rehabilitation services.

Medicare officials “should consider how to ensure that beneficiaries with similar post-hospital care needs have the same access to and cost-sharing for SNF (skilled nursing facility) services,” the report says. The OIG said that allowing outpatient nights to count toward the three-night requirement for nursing home services “may require additional statutory authority.”

The legislation proposed by Courtney would eliminate the distinction between inpatient and observation status, allowing all patients who spend at least three days in a hospital to qualify for coverage for necessary rehabilitation care.

Representatives of the non-profit Center for Medicare Advocacy, which brought a class-action lawsuit challenging the observation status policy, have said the increased use of observation stays is fueled by hospitals’ financial concerns, at a time when federal overseers are cracking down on hospital readmissions and other Medicare spending.

In a recent newsletter, the advocacy center said it hears daily from patients who are denied Medicare coverage for their nursing home care because of observation status.  One recent call involved an 87-year old woman who fractured her shoulder and was deemed an outpatient by the hospital for her entire four-day stay. She paid $10,650 for her subsequent one-month stay in a nursing home, the center reported.

Read C-HIT’s previous coverage of observation status here and watch a TV report by NBC-Connecticut and C-HIT here.


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