Medicare Observation Status Update: How to protect yourself from unexpected medical expenses

I reported last September on the increasing use by hospitals of observation status, and the hardship the trend is creating for Medicare beneficiaries. Although Medicare guidelines state that it should take between 24 - 48 hours for a hospital to assess a patient's indeterminate medical condition, the reality is that many patients remain in the hospital under observation status for much longer. Typically, the patient is admitted through the emergency department. The patient may not even realize that he/she is under observation status, since (1) everything about the stay seems to resemble a regular hospital admission, from treatment to testing to occupying a bed; and (2) hospitals are under no obligation to inform a patient that he has been admitted as an under observation patient. 

The end result for seniors on Medicare is not pretty. Medicare covers skilled nursing care (up to 20 days) only if it is immediately preceded by an INPATIENT hospital stay of at least three consecutive days. Thus, a patient who is admitted to the hospital under observation status and then discharged for rehabilitation will find himself responsible for the full cost of skilled nursing expenses. Take the case of Ike Cassuto, whose plight was recently brought to public attention by Senator Charles Schumer (D-New York). A retired tax attorney and World War II veteran, Cassuto spent four days at a hospital in Albany, NY. Unbeknownst to him or his wife, he was there on observation status, not as an inpatient. He was subsequently transferred to a nursing home for rehabilitation. It was only after the transfer that he discovered he was responsible for the nursing home expenses. Astonished, Cassuto's wife told the local newspaper, "He's flat on his back. He's been paying for Medicare since it was invented."

The cost of post-hospital skilled nursing is not the only troubling issue for seniors. Since observation status falls under Medicare Part B, not Part A, the patient may find himself unexpectedly responsible for a bigger portion of hospital charges, pharmacy expenses, etc.

Here are some steps you and your family can take to protect yourself and your pocketbook if you are admitted to the hospital:

• You or your family member should find out how the hospital has classified your stay. Is it inpatient or observation status? Ask each day, because it may change from day to day.
• If you have been admitted under observation status, contact your primary care doctor or the hospital doctor treating you. Ask that you be admitted an an inpatient. This has to be done promptly, since under Medicare rules, reclassification from observation status to inpatient status cannot be done after you are discharged.
• If you go to a skilled nursing facility for rehabilitation following your hospital stay and then discover Medicare is not covering the costs because you were under observation status, you may appeal. When you receive your Medicare Summary notice, highlight the disputed charges and follow the directions on the form regarding where to send your appeal. Needless to say, the wheels of this process also turn slowly, and there is no guarantee that your appeal will be successful, but keep at it. Note that you have only 120 days to appeal.

In the meantime, the courts and Congress are looking into the impact of Medicare observation status on seniors. (Of course, the judicial and legislative wheels turn very slowly).

• A lawsuit, Bagnall v. Sebelius, is currently working its way through the courts. The plaintiffs are seeking the elimination of hospital observation stays, or at least requiring hospitals to inform Medicare patients that their stay is classified as observation status. 

• On the legislative front, the "Improving Access to Medicare Coverage Act" was introduced on March 13 of this year (Senate Bill 569 and House Bill 1179). If passed, the law will amend Title XVIII of the Social Security Act, and permit a 3 day inpatient hospital stay to meet the 3-day hospital requirement for coverage of skilled nursing facility services under Medicare.

Check this blog for updates on this issue of great importance for seniors and their loved ones.