Subtle difference can affect Medicare payout
Being treated at the hospital doesn’t necessarily mean you’re in the hospital.
You may be in a bed in a room on a floor, with doctors and nurses coming and going and doing all sorts of tests. You may be there for days. But you may not actually be an inpatient.
Instead, you may be on observation status.
For the tens of thousands of seniors with traditional Medicare, the difference is more than just words.
Traditional Medicare requires a three-day inpatient stay before it covers the first 20 days of rehabilitation in an approved skilled nursing facility. Patients who are classified as observation status do not qualify for such Medicare services after they leave the hospital.
“The repercussions a family goes through financially, besides emotionally, can be staggering,” said Bill Stevens of West Bloomfield, Ontario County.
His 95-year-old mother had two hospitalizations last year that were classified as observation, leaving him to pay $7,000 for 17 days of rehabilitation in a nursing home after the first one and provide 24-hour care for her after the second. In late February, she was hospitalized for about a week as an inpatient. That time, Medicare covered her rehabilitation at a nursing home.
Stevens contended that observation status was not explained to him the first time, but it taught him a lesson. “For $7,000, I can get real smart real fast.”
Observation status looks and feels like full hospital admission, but technically you are an outpatient. Observation is meant to be short term, for the time it takes doctors to decide whether you need to be admitted or can be sent home.
“Observation really means an outpatient level of care,” said Sommer Slavin, manager of utilization management for Strong Memorial Hospital.
Doctors refer to nationally accepted guidelines when they determine the appropriate level of care. The criteria are objective, but they’ve changed over the years as technology has allowed more procedures to be done on an outpatient basis.
Ultimately, the determination of observation or inpatient status comes down to physicians’ judgment.
“The last thing we want is the patient stuck in the middle of this extremely confusing process,” said Dr. Bryan Gargano, medical director of the emergency department at Rochester General Hospital. He gave examples of patients with appendicitis or who’ve undergone heart procedures who have been treated under observation when in the past they would have been inpatients.
While the patient is still getting the same care in the hospital, the problem arises if they need followup after they leave the hospital.
That’s where the three-day qualifying inpatient stay is crucial for Medicare fee-for-service patients.
“The ones I feel worse for are elderly patients who are not doing well at home … and they need rehab but are stuck with a huge bill,” Gargano said.
Medicare Advantage plans do not necessarily have the same rule.
Dr. Frank Dubeck, chief medical officer for Medicare policy and clinical editing at Excellus Blue-Cross BlueShield, said that under Excellus, hospital status doesn’t affect eligibility for rehabilitation services, as long as they are deemed medically necessary.
Robin Wood, associate director of public relations for MVP Health Care, wrote in an email that the insurer’s Medicare Advantage plans require the three-day qualifying stay in an effort to keep premiums affordable.
People with private commercial insurance are subject to terms of their contract.
Far more patients have inpatient status at Rochester hospitals than are classified as observation. Strong Memorial in fiscal year 2012, for example, had a total 41,160 inpatient cases and 10,321 observation cases. Among its Medicare patients, 13,163 were inpatient and 2,980 were observation.
Observation cases are increasing at Rochester hospitals.
» Strong projected total Medicare observation cases for fiscal year 2013 at 3,361, up nearly 1,000 over five years ago.
» Highland Hospital in fiscal year 2012 had 19,589 total inpatient cases and 3,301 total observation cases. Of those, 1,456 were Medicare patients. Highland projected Medicare fee-for-service and Medicare Advantage observations for fiscal year 2013 at 1,958 out of 3,922 total observation cases. It projected slightly fewer total admissions for the year.
» Rochester General had 33,159 total admissions and 8,387 observations in fiscal year 2012. Of the observations, 1,526 were among Medicare recipients.
» Unity Hospital’s total observation cases in 2012 were up nearly 29 percent over 2010 and inpatient cases were down slightly more than 9 percent in that time. A breakdown for Medicare patients wasn’t available.
Local data reflect national trends. A study in the June 2012 issue of the journal Health Affairs reported the ratio of observation stays to inpatient admissions from 2007-2009 among fee-for-service Medicare patients increased 34 percent. In addition, the nearly 1 million Medicare recipients who were placed on observation were kept in that status longer, sometimes for more than 72 hours. Medicare doesn’t cap the length of an observation stay, but its regulations call for it to last no more than 24 hours and only in rare cases to exceed 48.
In theory, observation stays can eliminate an unnecessary inpatient stay. The study said increased observation stays might be a result of payment policies — assessing penalties on readmissions and performing audits to make sure admissions were appropriate — by the Centers for Medicare & Medicaid Services. But it said more research was needed into the reasons.
Whatever the cause, patients and hospitals are pushing back.
In November 2011, the Center for Medicare Advocacy and the National Senior Citizens Law Center filed a class-action suit against the U.S. Department of Health and Human Services, which oversees Medicare.
Last November, the American Hospital Association filed suit against HHS over payments that were denied because auditors ruled care could have been provided on an outpatient basis.
This past February, local advocates for seniors asked state legislators to require hospitals to notify and give a full explanation to patients about what observation status means. They’ve also asked federal legislators to pass legislation that allows time spent in observation to count toward hospital days needed to receive Medicare-covered skilled nursing. Sen. Charles Schumer, D-N.Y., announced early in March his plan to introduce bipartisan legislation that would have observation stays count toward the three-day requirement. According to the senator, more than 225,000 people in Monroe and eight nearby counties are affected.
Stevens’ education started in July, when his mother went to the hospital because of anxiety and vomiting. She was treated, and Stevens was told he could take her home. He objected because of her condition, and she ended up staying four days. When she was being discharged, Stevens was told his mother would need rehabilitation services. He said it wasn’t until then that he was told her stay was observation and not inpatient.
“I asked, ‘What does this mean?’ ” Stevens said. “I’m told she needs rehab. That’s when observation is mentioned. The bottom line is Medicare will not pay.”
In December, Stevens’ mother fell and he thought she’d had a stroke. He took her to the same hospital, which he declined to identify, and said she stayed approximately four days in observation while tests were done. She did not suffer a stroke, but she did have a broken toe.
Stevens said doctors told him they could discharge her to a rehab facility or 24-hour home care. He knew that because his mother was not an inpatient, he’d have to pay for rehab. He took care of her.
In late February after a fall at home, the elderly woman was admitted to Strong Memorial Hospital, and about a week later was discharged to a nursing home for rehabilitation. Stevens said he didn’t ask why this episode resulted in an admission as an inpatient while the others were handled as an outpatient observation. Dan Katz, president and chief executive officer of Jewish Senior Life, said rehab facilities try to screen each patient to make sure there’s been a qualifying hospital stay. But admissions happen fast; Katz said the Jewish Home has 1,000 a year for the 68-bed transitional care unit. “We can have four or five a day.”
If the facility learns the patient doesn’t qualify for Medicare coverage, “it puts the family in a bind,” he said.
Costs for nursing home care can exceed $400 a day.
Follow the money
Observation status for patients can mean a denial of coverage for rehabilitation and for hospitals it can mean lower reimbursement. John Midolo, vice president of finance for Rochester General Health System, said a hospital is fortunate if the reimbursement for an observation patient is half that for an inpatient.
It’s the same across town at Strong Memorial. It reported that for the most common diagnoses, the average payment for a one- or two-day inpatient case was $5,782, while the payment for an observation case of the same duration was $2,329.
“I know a lot of people focus on reimbursement,” said Strong Memorial’s Slavin. “We’re trying to get the level of care right because it really is the best thing to do for the patient.”
While doctors take a cookbook approach to decide on observation or inpatient status and hospital care managers review the call, it can come under review.
Medicare contracts with auditors to make sure hospital admissions are justified. Strong is being questioned for some one- and twoday admissions and is appealing the auditor’s findings, said Charlie Hetterich, associate director of financial services for Strong.
Rochester General had 857 denials of cases it classified as inpatient since 2010, according to Midolo. In all but four cases, the hospital appealed.
So far, it has won 69 cases and has 708 still in the process.
Until recently, losing the appeal meant the hospital had to absorb all the charges. Midolo said that a CMS ruling in early March will allow hospitals to rebill for outpatient treatment, which may give patients a higher co-pay or deductible.
Slavin said the auditing goes on behind the scenes and hasn’t affected how doctors assess patients. Patients such as Stevens claim that the designation of a patient’s status isn’t always obvious.
Stevens said that during his mother’s December hospitalization, he told a doctor that he’d never been informed about observation status.
“The doctor came back with a pamphlet,” he recalled. “That did a good job explaining it, but I had never received it.”
Slavin said at Strong the expectation is that patients in the emergency department are considered observation status. She said it’s understandable that patients moved elsewhere in the hospital would think they are now an inpatient, and her department explains observation status.
“It’s very, very difficult for them to understand that,” said Kelly Luther, director of social work and patient and family services. “If I were in their shoes, I would appreciate that as well.”