Is There Any Recourse for Hefty Observation Status Bills?

Q. In the past, you answered questions about hospitalized people who were too sick to go home but not sick enough to be admitted. Many of them were in the hospital for a week, thinking it would be covered by Medicare. They were surprised when they received a huge bill from the hospital and an even larger bill from the nursing home for the rehabilitation care afterwards.

A similar situation happened to my aunt, who was hospitalized for a urinary tract infection. My uncle was told that Medicare isn’t paying for her stay because the hospital had her in “observation status” rather than “inpatient status” during the week, and that Medicare doesn’t pay for “observation status” in the hospital.

My uncle received a bill for $3,000 for the hospital stay and $8,000 for rehabilitation in the nursing home afterwards. This is far more than they can afford, being on a fixed income.

Is there any recourse for those in my uncle and aunt’s situation?

A. Observation care was originally meant to be a short period of time for providers to assess whether patients required admission for inpatient care or could be discharged from the hospital. It was supposed to last fewer than 24 hours and was not meant to exceed more than 48 hours. Over the past ten years, however, the incidence and duration of observation stays has increased significantly.

Medicare pays for an admitted patient under Part A hospital insurance. But an observation patient is treated under Part B rules. Then, if an observation patient needs skilled nursing facility (SNF) care, Medicare won’t pay. Medicare’s nursing home benefit is available only to those admitted to the hospital for three consecutive midnights. If someone spends three days in the hospital but they are getting observation care, however, that time doesn’t count. The cost of the hospital and subsequent skilled nursing care becomes a hefty bill (typically in the thousands) for patients and their loved ones to pay.

What Patients Can Do

As you mentioned, patients typically receive observation care in the hospital when their doctors think they are too sick to go home but not sick enough to be admitted. They stay overnight or longer, usually in regular hospital rooms, getting many of the same services and treatment as an admitted patient, including intravenous fluids, medications and other treatment, diagnostic tests and round-the-clock care they can get only in a hospital.

As laws have changed throughout the years, hospitals must at least inform patients that they are in observation status. The NOTICE Act, which became a law in August 2015, requires hospitals to tell Medicare patients when they receive observation care, but have not been admitted to the hospital. The law requires hospitals to provide written notification to patients 24 hours after receiving observation care, explaining that they have not been admitted to the hospital, the reasons why, and the potential financial implications. To inform them, observation patients get a Medicare form called a Medicare Outpatient Observation Notice (MOON). But that doesn’t seem to be enough. Observation care stays have increased about 70% since 2008, to more than 2 million in 2017, and patients still feel as if they have to ask to find out anything.

Currently, patients can’t even appeal bills for observation status. They CAN file appeals over many other Medicare decisions, but it is not allowed if the dispute involves observation care.

A Class-Action Lawsuit May Clear the Way for Appeals

On Monday, August 19, 2019, a trial began in a federal court in Hartford, Connecticut, brought by patients who were denied Medicare’s nursing home benefit because they were unknowingly under observation status, are hoping to force the government to eliminate that exception. A victory would clear the way for appeals from hundreds of thousands of people.
The original class-action lawsuit was filed in 2011 by seven Medicare observation patients and their families against the Department of Health and Human Services. Seven more plaintiffs later joined the case.

“This is about whether the government can take away health care coverage you may be entitled to and leave you no opportunity to fight for it,” said Alice Bers, litigation director at the Center for Medicare Advocacy, one of the groups representing the plaintiffs.

If they win, people with traditional Medicare who received observation care services for three days or longer since Jan. 1, 2009, could file appeals seeking reimbursement for bills Medicare would have paid had they been admitted to the hospital. More than 1.3 million observation claims meet these criteria for the 10-year period through 2017, according to the most recently available government data.

Lawyers in the case argue that the government can’t be blamed, because hospitals and doctors — not the government — have the final word on whether a patient should be admitted. The government’s lawyers argue that since Medicare “has not established any fixed or objective criteria for inpatient admission,” any decision to admit a patient is not “fairly traceable” to the government.

We hope for a positive outcome and will certainly keep you updated on the status of the case.

What Recourse Do You Have Now?

Unfortunately, with the lack of ability to appeal observation status with CMS, there is no recourse to date. Hopefully, the lawsuit will change this!

In the meantime, patients and their families should consider doing the following:

  • Demand a clear explanation, while they are in the hospital, of their status.
  • If you feel you should be admitted, talk to the hospital’s patient advocate.
  • Try to persuade the physician or hospital administrators to change your status.
  • If not, plan for what to do if Medicare will not pay for skilled nursing facility care. You may have to spend several thousand dollars out of your own pocket for treatment.
  • If you choose to, you can leave the hospital to avoid the extra expenses, even if doing so is against medical advice. You may be told by the hospital that if you leave a hospital against medical advice, then Medicare will not cover you for any of your hospital stay. Thankfully, that is a myth. However, if you are using private health insurance as opposed to Medicare, it is possible that leaving against medical advice might enable your private insurance carrier to refuse to pay your hospital bill.
  • If you are transferred to a nursing home for short term rehabilitation, be certain to ask whether your stay is being covered by Medicare or whether you are considered private pay. If your stay is not being covered under Medicare, you have the right to leave and you will only be billed for the time you actually spent at the nursing home.

Plan Now for Long-Term Care

If you have a loved one who has been hospitalized often, it may be time to consider long-term care options. Did you know that long-term care costs $12,000 – $14,000 a month in the Metro DC area?

To protect your family’s assets from these high costs, the best time to create your own long-term care strategy is NOW. Generally, the earlier someone plans for long-term care needs, the better. But it is never too late to begin the process of Long-term Care Planning, also called Lifecare Planning and Medicaid Asset Protection Planning.

If you have a family member nearing the need for long-term care or already getting long-term care or if you have not done Long-Term Care Planning, please call us as soon as possible to make an appointment for a no-cost consultation:

Elder Law Fairfax: 703-691-1888
Elder Law Fredericksburg: 540-479-1435
Elder Law Rockville: 301-519-8041
Elder Law DC: 202-587-2797

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