A person’s hospital stay may not be considered by Medicare to be an inpatient hospital stay, but rather is billed as outpatient observation.  Most Medicare beneficiaries know that Medicare Part A will pay for their hospitalization and will also pay for their post-hospitalization care in a skilled nursing facility, if they meet certain requirements.  One of the requirements for Medicare Part A coverage is that a beneficiary must be a hospital inpatient for at least three consecutive days before admission to the skilled nursing facility.

Across the country, increasing numbers of Medicare beneficiaries are being denied Medicare coverage for skilled nursing care following a hospitalization.  Even though beneficiaries have been in a hospital bed, on a nursing division, receiving physician and nursing services, medications, tests, and meals, they are in some cases classified as outpatients.  Long hospital stays, some as long as two weeks, have been classified by the hospital as an outpatient observation.  The beneficiary in this situation would have no idea their stay was being considered as an outpatient observation.  It appears like an inpatient admission in all respects.

When the hospital classifies a beneficiary as an outpatient, Medicare Part B covers these services instead of Medicare Part A, the hospital benefit.  The Medicare beneficiaries are then responsible for their entire skilled nursing home stay because they never met their three-day consecutive inpatient hospital requirement.  This lack of knowledge on the beneficiaries’ part can be quite costly.

In Bagnall v. Sebelius, U.S. District Court, D. Connecticut, September 23, 2013, a lawsuit filed by fourteen Medicare beneficiary Plaintiffs alleged that the U.S. Department of Health and Human Services failed in its duty to force hospitals to comply with the Medicare obligations.  The Medicare beneficiaries wanted the hospitals to eliminate the observation status completely or to require hospitals to give notice to the patients on observation status and to establish an appeals process.  Judge Michael P. Shea held that the Department of Health and Human Services was acting in accordance with the law in allowing physicians and hospitals to decide whether patients should be admitted to the hospital.

This ruling was a disappointment to many advocates and Medicare beneficiaries.  Critics believe that physicians are not the ones actually making these decisions.  Rather, hospital care coordination and utilization review teams, comprised primarily of nurses, are making these decisions.  Furthermore, it is believed that the increased use of observation status stems from financial incentives created by a Medicare rule.  This particular Medicare billing rule states if a Medicare beneficiary is admitted to the hospital but that admission is later found to be improper, the hospital must refund the Part A payment to Medicare and cannot then bill Medicare under Part B.  Hospitals have an incentive to utilize the observation status as a means to control costs.

As we all know, the Medicare laws are complex and often difficult to understand.  The Center for Medicare Advocacy has been working to raise awareness of this increasing problem that many Medicare beneficiaries may face.  The Center for Medicare Advocacy is an excellent resource.   For more information you may visit http://medicareadvocacy.org.

by Brigid Fernandez, LCSW, JD