She was in the Hospital a Week, and They’re Calling it Observation Status!


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Q. Last month, my 82 year-old mother, Shirley, fainted and hit her back on the bathroom counter on her way to the ground. When she came to, she could hardly move, but she was able to grab her phone to dial 911. 

She was taken to the emergency room, where the attending nurses looked her over and booked her into a bed. Over the next week, she was given every kind of test imaginable: X-rays, electrocardiogram, CT scan, ultrasound, and an MRI. Nurses came and went, and so did the doctors. Finally, after a week in the hospital, the problem was uncovered: a fracture in her lower spine. They called in a specialist, who was able to operate the same day 

After her surgery, she was moved to a different hospital room for one day of recovery, and then transferred to a nursing home for two weeks of rehabilitation 

Now she just received a monstrous bill from the hospital (over $4,000), and an even larger bill from the nursing home (over $8,000).  It turns out that Medicare covered the surgery and the one day in the hospital after that, but it did not cover the first week in the hospital and did not cover the time in the nursing facility for rehab We called the hospital and nursing home to figure out why everything wasn’t covered by Medicare, and were being told her that Medicare isn’t paying because the hospital had her in observation status rather than inpatient status during the week when they couldn’t find anything wrong with her, and they say that Medicare doesn’t pay for observation status” in the hospital. And they’re telling us that since the hospital only officially “admitted” her the day of the surgery, and she didn’t stay in the hospital for 3 days after being “admitted, that Medicare doesn’t cover the rehabilitation expenses either.

I can’t believe this. She was there for a week, and seen by nurses and doctors. How can they call that “observation status?”  Is this legal?  My mom can’t afford to pay these enormous bills. 

A.  I’m very sorry to hear your story, but unfortunately your situation is quite common.  Observation status was designed to be a short period during which the hospital observes you to assess whether you need to be checked in for longer-term inpatient care or whether you can be quickly treated as an outpatient and sent home. According to the claims-processing manual published by the Centers for Medicare and Medicaid Services, or CMS, a patient is either admitted as an inpatient or discharged in less than 24 hours, and “in only rare and exceptional cases” do they last more than 48 hours. 

Unfortunately, as in your mother’s situation, the definition provided by CMS isn’t consistent with the data. In fact, researchers at Brown University, who reviewed Medicare claims from 2007 to 2009, found that more than 10% of Medicare recipients were placed on observation status for over 48 hours. And, in those two years, there was an increase of nearly 90% in the number of patients held in observation status for more than 72 hours. Also, in a 2014 report to Congress published by the Medicare Payment Advisory Commission, it was found that there were 1.8 million observation claims submitted in 2012, an 88% increase from six years earlier

What are the Problems with Observation Status? 
  • A Medicare beneficiary must spend three consecutive midnights in the hospital — not counting the day of discharge — as an admitted patient in order to qualify for subsequent short-term rehabilitation coverage that typically takes place in a nursing home. If a patient is under observation but not admitted, she will also lose coverage for any medications the hospital provides for pre-existing health problems. Medicare drug plans are not required to reimburse patients for these drug costs.
  • Medicare beneficiaries are often kept in observation status at the hospital even though they allegedly received inpatient-type care. Observation stays are considered outpatient services, which means they are paid for by Medicare Part B, whereas inpatient services are paid for by Part A. And while Part A covers the costs of all services after the deductible has been met, Part B generally only covers 80%, and it usually doesn’t cover the costs of drugs. 
  • Physicians working in hospitals confirm that the decision often seems out of the attending health care worker’s control. Whatever the nurse or doctor writes down on your charts has to go past a review committee, which usually uses “clinical-decision support” software to make decisions.

Why Wouldn’t Every Doctor Simply Admit All Patients Into Their Hospitals as Inpatients?  

Hospitals can be penalized for misclassification. As a result, they often err on the side of classifying patients as being present for observation only. Until changes are made, here are a few steps hospitalized seniors and their families can take:
  1. Ask what status you or your loved one is in. Hospital personnel should answer the question if asked.
  2. Advocate with the treating physician and/or hospital director for reclassification if the patient is classified as being present for observation only. If a change gets made, the patient will need to stay for three midnights afterwards in order to get short-term rehab coverage.
  3. Go home as soon as possible and ask for home health coverage, as here is no three-day prior hospitalization requirement for Medicare-covered home health care.

Bagnall vs. Sebelius 

Richard Bagnall and other seniors who were denied Medicare coverage for skilled nursing care initiated a lawsuit about observation status in 2011. The plaintiffs asked the judge to eliminate hospital observation stays, or to at least require written notification when a patient is classified as observation rather inpatient status. Government lawyers argued for dismissal, saying the plaintiffs did not go through the entire Medicare appeals process before filing the lawsuit. The Center for Medicare Advocacy (CMA), representing 14 of the plaintiffs, argued that the appeals system is broken.

In September 2013, a District Court judge granted a government motion to dismiss Bagnall v. Sebelius, prompting CMA to file an appeal. Read more here.

The NOTICE Act  

Although observation status is still intact, at least patients will be more informed than in the past. The NOTICE Act became a law in August 2015, requiring hospitals across the nation 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. 

Hospitals will have to comply with the NOTICE Act beginning next August (one year after it was signed into law). Read more here.

In the meantime, your mom is probably going to be stuck paying those bills that she incurred.  If she doesn’t pay, she will probably wind up being sued by the hospital and the nursing home.  She can hire a lawyer to fight the hospital and the nursing home, or to try to negotiate a reduced settlement, but it’s not likely that the bills are just going to go away.

Medicaid Planning in Virginia and other States.

What if your mother needs long-term nursing home care (which costs $10,000 – $14,000 a month in the Metro DC area)? To protect your family’s hard-earned assets from these catastrophic 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:

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

Renee Eder is the Director of Public Relations for the Farr Law Firm, and gives the voice to the Critters of Critter Corner. Renee’s poodle, Penny, is an official comfort dog who she and her children bring to visit with seniors who are in the early stages of dementia at a local senior home once a month.

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