You’re in a hospital bed, and there you remain overnight — perhaps longer. Whatever adversity you’re facing, one thing you may never consider is whether or not you’ve been admitted to the hospital: that is,…
You’re in a hospital bed, and there you remain overnight — perhaps longer. Whatever adversity you’re facing, one thing you may never consider is whether or not you’ve been admitted to the hospital: that is, specifically, if you’re an inpatient.
Under most circumstances, a patient cared for in the hospital is — or quickly becomes — an inpatient. A patient cared for in the community, say at a clinic or doctor’s office, would be an outpatient. But there’s a murky middle where some Medicare beneficiaries have been surprised to find themselves: under observation — considered outpatients — in the hospital.
“Observation services are hospital outpatient services you get while your doctor decides whether to admit you as an inpatient or discharge you,” according to Medicare.gov. “You can get observation services in the emergency department or another area of the hospital.” It goes on: “The decision for inpatient hospital admission is a complex medical decision based on your doctor’s judgment and your need for medically necessary hospital care.”
But clinicians argue they’re bound by Medicare policy, and that it’s primarily a billing distinction rather than one that neatly reflects the level of care patients need. Criteria are so difficult to interpret and implement that hospitals rely largely on external and in-house reviewers to determine whether a patient’s status is observation or inpatient. “Over the last several years it has really morphed into this huge regulatory burden, which is really frustrating for physicians and, just in general, bad for patients,” says Dr. Melinda Johnson, hospitalist and clinical professor of internal medicine at the University of Iowa Hospitals & Clinics, who contributed to a 2017 Society of Hospital Medicine white paper that was critical of observation status.
The obscure, confusing status distinction impacts how patients are covered and billed and can lead to significantly higher out-of-pocket costs. In particular, being under observation at the hospital instead of an inpatient can make it difficult — if not impossible — for some patients to be able to afford skilled nursing rehab care that they need after leaving the hospital.
“We really get calls all the time about this — just constantly,” says Toby Edelman, senior policy attorney at the nonprofit Center for Medicare Advocacy — regarding challenges patients face after being placed under observation at the hospital. “The biggest issue for most people is if they go to a skilled nursing facility afterwards, Medicare Part A won’t cover their stay, because you have to be an inpatient for three consecutive days, not counting the day of discharge.”
At the hospital, Medicare covers patients under observation — or outpatients — differently from inpatients. While inpatient hospital stays are covered under Medicare Part A, patients under observation are covered under Medicare Part B — something most, but not all Medicare beneficiaries have. “Instead of paying the inpatient deductible for the hospital, they have to pay copayments under Part B for any services that are provided to them — any test, anything that’s done in the hospital,” Edelman notes. She says she recently spoke with one woman who didn’t have part B coverage who received a bill from the hospital for $23,000. While costs vary greatly, patients can end up spending hundreds or thousands more out-of-pocket in some cases if they’re placed under observation for everything from medication to doctors’ services to post-discharge skilled nursing care that isn’t covered by Medicare.
For those with a Medigap plan, private insurance that supplements Medicare Part A and Part B, that should cover such copayments while patients are in the hospital. But it still won’t cover prescription and over-the-counter drugs costs patients who are under observation might encounter during their hospital stay, including so-called self-administered drugs patients would normally take on their own, which aren’t covered under Part B either. “They also have to pay for their medications,” Edelman says. Patients with a Medicare prescription drug plan, or Part D, would likely need to submit a claim to try to recoup any of that cost, and they may still not get reimbursed. “Even if they have a Part D plan, the hospital pharmacy is unlikely to be part of the network of that Part D plan,” Edelman says. Given the high medication costs patients can face under observation, hospitals have the authority to waive these charges, too, she adds. So it’s worth asking, though it doesn’t mean that will happen.
One thing that has changed for hospitals and Medicare patients: Patients who have been receiving “observation services,” who have been an outpatient in the hospital, for more than 24 hours must be notified in writing of their status. “We are obligated to deliver them what’s called the Medicare Outpatient Observation Notice, or the MOON,” says Dr. Ann Sheehy, an associate professor of medicine and the head of division of hospital medicine at the University of Wisconsin School of Medicine and Public Health, who also contributed to the Society of Hospital Medicine white paper.
This paperwork that a patient or representative must sign clarifies the patient’s status and discloses ramifications for coverage and that it might affect what a person pays out of pocket. The requirement is a result of the NOTICE Act (or Notice of Observation Treatment and Implication for Care Eligibility Act), which Congress passed in 2015. Still, Sheehy and others note, that doesn’t clear up all the confusion for a patient surrounding what being under observation means, particularly in terms of how it may affect the cost of care. “We can’t really tell a patient accurately what their out-of-pocket risk is going to be,” Sheehy says. “But we know that patients may be vulnerable to higher out-of-pocket costs.”
But while clinicians and patient advocates generally see the required notice as a step forward, there’s no formal process to challenge one’s status. “This is the only Medicare notice that does not give people the right to appeal,” Edelman points out.
There’s no hard and fast cutoff after which a person’s status must be changed from outpatient to inpatient during a hospital stay, but the Centers for Medicare & Medicaid Services notes that, “In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours.” CMS’s so-called two-midnight rule also comes into play. This CMS policy “provides that inpatient admission is generally appropriate when a physician anticipates that a patient will be hospitalized for two or more midnights,” Copeland explains. “If the physician is uncertain or anticipates a shorter period of hospitalization, the policy directs the physician to classify the patient as an outpatient.” But clinicians note that patients can be severely ill, and need to be inpatients, even if their hospital stay is brief, in some cases; while there’s no guarantee for patients that they won’t be placed under observation for a longer stay.
Still, patient advocates say that while tough to do, it may still be worth seeing if that status can be changed to inpatient — though clinicians routinely emphasize they’re unable to do so. “The only way is if they recognize some lab — some finding, some something — that wasn’t recognized before, that would put the patient into the inpatient category,” Johnson says. “Otherwise it would just be Medicare fraud.”
Despite the difficulty inherent in getting one’s status changed, Lindsey Copeland, federal policy director at the Medicare Rights Center in Washington, recommends seeking assistance from a primary care doctor who is familiar with a patient’s medical history and other particulars to make the case, if needed, for their being made an inpatient during a hospital stay. “We do think that physicians have some discretion in their ability to change the status,” she says, adding that it can often be helpful to look at medical history, what the patient is facing, their needs and their level of care — to make that case — whether the patients are comfortable doing so themselves or in asking their primary care physician to intervene on their behalf. “Certainly we want to stay within the lines,” Copeland says. “But we do think there is some discretion there that hospitals can look [at] individual patients and take their unique circumstances and unique needs into consideration when making this classification.”
Amid the back and forth, there’s general agreement, however, that observation status is difficult to change. That can make an already stressful time, when a person is in the hospital, even more difficult for patients. So patient advocates and clinicians like Johnson and Sheehy are continuing to push for additional legislation that would alleviate the confusion — possibly get rid of observation status altogether — but without adding to the cost of the already expensive Medicare program.
In the meantime, in addition to Medicare beneficiaries, people with private insurance may be placed under observation. While each plan is different, that can affect coverage and out-of-pocket costs, just as it does for people covered by Medicare. And for patients who are covered only by private insurance, it’s not required that they be given notice of their status, since the NOTICE Act only covers Medicare beneficiaries.
For all patients and their advocates, experts suggest making sure that they’re aware of the patient’s status and know what it could mean for coverage and what they’ll pay out of pocket. “We certainly continue to encourage people to always ask lots of questions when they are in the hospital,” Copeland says. That extends to how it may affect their ability to access affordable rehab care, if needed, after they leave the hospital — namely, whether skilled nursing care will be covered, or if not, what other options might be recommended.