A not-so-funny riddle from Medicare: When is being in the hospital not being in the hospital?

When is being admitted to the hospital, not being in the hospital? When you are admitted for observation.

This is not just a semantic distinction. If you are on Medicare, the way the hospital stay classifies your stay can have huge implications for your pocketbook, both during your stay and possibly after. Moreover, you might not even know that you are classified as "observation status" until the episode is over.

Observation status usually means that either the hospital is unable to determine what is wrong, or you don't necessarily need inpatient services. For example, you might go to the emergency room complaining of nausea and chest pains. If you remain in the hospital for observation, your stay falls under Part B, not Part A. Medicare considers that to be an outpatient service, and thus will not pay for the hospital room. Although Medicare recommends that observation stays should be limited to 24 hours, such stays have been known to go well beyond this guideline.

Secondly, if you require sub-acute care following your hospital stay, Medicare will not pay for care in the nursing facility if you were in the hospital under observations status. Medicare will only pay if you have been in the hospital for a minimum of three days as an inpatient. Obviously, with nursing home care costing hundreds of dollars per day, many Medicare beneficiaries who have been on observation status and then require skilled nursing services, find themselves unable to pay for their rehabilitative care.

The number of observation stays is increasing. According to a recent study from Brown University published in Health Affairs, there has been a 25% increase in observation stays from 2007 to 2009. What's in it for the hospital? Well, it's simple arithmetic. Although the hospital receives more compensation for an inpatient stay, Medicare auditors who decide that an inpatient admission was not necessary can take back from the hospital all it's received from Medicare. An observation stay pays the hospital less but it's a safer bet. A bird in the hospital's hand is worth two in the bush, you might say.

When you are admitted, you should find out how your stay is being classified.If you don't know you're on observation, you might not even realize you're going to be on the hook for any post-discharge nursing home care.

Although it's under most people's radar, there is a pitched battle unfolding over this issue. Medicare, nursing homes, hospitals, consumer and health advocacy groups trying to figure out how to best resolved this complicated issue. Many groups want Medicare should cover all hospital stays, regardless of the nature of the classification. The Center for Medicare Advocacy has legally challenged the observation care classification in its entirety

Also, a bill introduced in 2011 by John Kerry (D-Mass) and Joe Cortney (D-Conn)  seeks to allow a three-day observation stay to qualify a patient for Medicare coverage for follow-up skilled nursing care, just as a three-day inpatient stay does.You can read a summary of HR 1453 here. Consider calling your congressional representatives to urge them to support the bill. Click here to find out who your representatives are and how to contact them.