January 20, 2020
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Are you being ‘observed’ in the hospital? Seniors, you might get a hefty bill

If you’re a Medicare enrollee who has been hit by an unexpected medical bill, you might be familiar with the term “observation status.”

Hospitals increasingly are placing seniors under “observation” instead of admitting them as inpatients, and a Senate panel led by U.S. Sen. Susan Collins wants them to hit the brakes.

Many seniors are surprised to learn they were never admitted, even after staying overnight at a hospital and receiving treatment, testing and medications. Most learn about it when a bill arrives in the mail for out-of-pocket costs they never anticipated.

Why are hospitals doing this, why is it costing seniors money and how is Maine responding? Here’s a breakdown:

Observation status is for patients not healthy enough to go home but not sick enough to be admitted. Doctors use observation time to decide whether to admit a patient, such as by running tests or performing lab work. As Kaiser Health News explains, “this care requires a doctor’s order and is considered an outpatient service, even though patients may stay as long as several days.” Under Medicare guidelines, hospitals should decide whether to admit patients within 24 to 48 hours.

Patients “under observation” wind up in administrative limbo. Studies found hospitals began using observation stays as a substitute for inpatient status.

The number of Medicare beneficiaries under observation has jumped dramatically — 88 percent over the past six years, to 1.8 million in 2012, according to the Medicare Payment Advisory Commission.

Observation visits lasting longer than 24 hours more than doubled to 854,454 between 2006 and 2012, according to KHN.

Numbers on how many Maine people are affected by this issue are hard to come by, but about 275,000 residents are covered by Medicare — that’s one in five Mainers.

Hospitals want to get paid for the care they provide. Medicare won’t reimburse hospitals for treating patients who were admitted but should only have been observed. That’s because the program wants to stamp out fraud and abuse. Inpatient care is more expensive than outpatient care and, therefore, is costlier for Medicare to cover.

So hospitals increased their shares of observation patients, wary of auditors who sniff around their books and decide some patients never should have been admitted, then deny reimbursement.

Seniors often need care that’s covered only after a hospital admission. If a senior spends time in the hospital under observation status, Medicare won’t pay for follow-up nursing home care that individual may need after discharge. “Skilled nursing care” includes treatments such as intravenous insulin injections for diabetics and physical therapy after an injury or surgery. Patients who never were formally admitted — whether they know it or not — don’t quality for skilled nursing care. They get two choices: forego it or pay for the care themselves.

“They just know that they are in the hospital,” Collins, chair of the Special Committee on Aging, said. “If they are admitted later to a skilled nursing facility for follow-up care, they may be shocked to learn that they will be liable for out-of-pocket costs totaling thousands of dollars.”

Seniors face other out-of-pocket costs. Outpatient care — which technically includes observation care — often comes with copayments for doctors’ fees, hospital services and medications patients must pay. Medicare won’t cover even routine drugs for patients in observation care. (Some seniors have a separate Medicare drug plan, but whether it covers such medication is up to the insurer, according to KHN.)

And, unlike with fees for inpatient care, Medicare sets no limit on the amount of outpatient expenses beneficiaries owe.

Many Medicare patients don’t know they’re being “observed.” Seniors often wrongly, but understandably, assume they’ve been admitted after spending a night or two in the hospital. Medicare does not require hospitals to inform patients they are in observation status or that they’ll be left holding the bag for the cost of any uncovered services — but hospitals must tell patients if they’re downgraded from inpatient to observation. While legislation has passed the U.S. House that would require such notification, Collins encouraged Medicare officials to make this change on their own even without a legislative fix.

What else is being done to address this issue? Last year, Medicare officials announced a new rule designed to limit the use of observation stays. Patients expected to remain in the hospital through at least two midnights would be admitted, while those expected to stay for less time would be observed. Hospital groups criticized the rule, fearing it would result in decisions being made about patients’ care based on the time or day or night they arrived, instead of on their health. Officials postponed enforcement of the rule.

Collins co-sponsored legislation that would require time spent in observation status be counted toward the three-day inpatient stay Medicare requires before paying for skilled nursing care. The bill is pending in the Senate Finance Committee.

A Maine program is trying another approach. Tori Gaetani is in charge of care coordination for Beacon Health, an Eastern Maine Healthcare Systems-led pilot program to reduce Medicare costs while improving quality. As she explained at Wednesday’s hearing, Beacon Health obtained a waiver from Medicare freeing it from the requirement patients be admitted for three overnights to qualify for skilled nursing care. Beneficiaries can instead be admitted directly to skilled nursing facilities — from a primary care office, emergency room or shorter hospital stay — if clinicians determine they would benefit from that care, she said.

About a dozen skilled nursing facilities participate, and must meet certain quality metrics.

Gartani, a nurse, said patients’ care is better coordinated under the program.

“No matter how each patient was admitted, the common denominator is Beacon Health knew where the patient was, what their needs were, and we were able to advocate for their appropriate level of care,” she testified.

The program also saves Medicare money, she pointed out. One patient who avoids three nights in a hospital could save Medicare about $30,000, she said.

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