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Beware Hospital Medicare “Observation Status” Classification

By Harry S. Margolis

More and more often, Medicare patients going to hospitals are being classified as being there for “observation” rather than for inpatient services, often even if they are there for several days. This can have a severe negative and unanticipated impact on Medicare coverage of subsequent skilled nursing facility care.

Typically, Medicare covers skilled nursing facility care following a hospitalization of at least three days for as long as the patient continues to require skilled care, up to a limit of 100 days (with a significant co-payment after day 20, which is generally covered by Medigap insurance). Patients are quite surprised when they learn that despite a three-day or longer hospitalization, they are not eligible for these continuing benefits because the hospital deemed their presence there to be for “observation” only.

This is an unintended result of a tougher stance taken by the Centers for Medicare & Medicaid Services (CMS) against what it views as fraud, waste and abuse by hospitals. A finding against a hospital for admitting someone deemed not to require hospital care can result in significant penalties.

While there’s not such thing as “observation” services in the Medicare statute or regulations, it is defined in a CMS manual as,

a well-defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and reassessment, before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital.

The problem for patients is that they often don’t learn about this classification until after they are discharged to a skilled nursing facility.  As a result, they must pay for very expensive services out-of-pocket.  Some services may be covered by Medicare as an out patient, but this gets quite complicated. In addition, patients may not be able to avail themselves of Part D coverage of medications because the facility may work exclusively with a pharmacy that doesn’t work with the patient’s Part D provider.

So what can patients and their families do? First, they should determine with the hospital how the stay is being classified.  (Of course, this might not be the first thing on their minds during the course of a hospitalization.) If the patient is being classified as being under observation rather than admitted as an inpatient, the family can ask the primary care physician to try to intervene with the admitting physician.

If that is unsuccessful, after the fact, the patient or family member needs to keep a close watch on all Medicare statements received (which are usually ignored since few people can understand them) concerning both the hospital and skilled nursing facility stays and appeal them as provided in the notices. This can be a long-term process and, of course, the patient must still pay for her care during the process. In addition, if family members are caring for an ill senior, they probably have their hands full as it is without fighting to get temporary Medicare coverage.

Two great places to go for information are the websites of the Center for Medicare Advocacy and the Medicare Rights Center.

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