Medicare Coverage: Observation vs. Inpatient Status

Medicare Coverage: Observation vs. Inpatient Status

On September 23, a federal district court in Connecticut dismissed the case of Bagnall v. Sebelius.  A group of Medicare beneficiaries, the Plaintiffs, filed this lawsuit to protest the use of “observation status” during their hospital stays.  Patients on observation status are designated as outpatients, even though they may stay on a hospital floor for days and receive the same care as inpatients.  The Plaintiffs were all hospitalized between three and seven days, but were either never formally admitted to the hospital as an inpatient, or were admitted for less than three days.  The members of this group were represented by the Center for Medicare Advocacy and the National Senior Citizens Law Center.  

Patients on observation status receive the same care as inpatients.  Because of this, patients may not know whether their status is inpatient or observation.  Some do not find out until they receive a Medicare Summary Notice explaining their benefits.  These notices typically arrive weeks or months after their hospital stay.  The out-of-pocket cost to a patient on observation status is generally much higher than the cost to an inpatient.  Medicare pays almost all of the cost of an inpatient stay.  Outpatients on observation status will have co-pays for tests and pharmaceuticals.  Also, patients must be hospitalized as inpatients for three consecutive days to receive Medicare coverage of nursing home care. As a result, patients on observation status must pay privately for skilled nursing care or rehabilitation services following their hospitalization.  Some patients have to dip into their savings or cash out life insurance policies to cover the high costs.  Others are forced to go without care.  The Plaintiffs in Bagnall v. Sebelius faced out-of-pocket costs of between $4,000 and $10,000 for nursing home care.

The judge in Bagnall v. Sebelius stated that it was up to the medical discretion of the treating physician whether a patient was formally admitted to the hospital as an inpatient or kept for observation.  The judge also found that Medicare was allowed to consider someone an inpatient only if that person has been formally admitted by a hospital, even if the patient remained in the hospital for days on observation status. 

Due to the court’s decision in this case, the use of observation status will likely continue to trouble Medicare patients.  According to the independent Medicare Payment Advisory Commission, the number of hospital stays classified as “observation visits” rose nearly 68% nationwide from 2006 to 2011.  A government study also found that more than 600,000 Medicare patients in 2012 were in the hospital for at least three days but still did not qualify for coverage of nursing home care.  Elderly patients need to be aware of what observation status means and what its consequences are, especially as this practice is so widespread.

If you are a Medicare beneficiary and you require medical treatment in a hospital, ask about your status often.  If you have questions about Medicare, or about other methods of financing health care services, please contact Weatherby & Associates, PC at 888-822-8778 to learn how we can help.

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