Did you know that even if you stay in the hospital overnight for several nights, you may never be formally “admitted” as in inpatient and instead may be considered an “outpatient” because the hospital coded you as being on “observation status”? Your status as an “inpatient” vs. “outpatient” affects how much you pay for hospital services and can have a dramatic impact on whether Medicare will cover post hospital care in a skilled nursing facility (SNF) or whether you will be financially liable.
Why would the hospital do this? The large increase in the use of “observation status” coding is an effort to reduce Medicare costs. Hospitals that bill Medicare for a Part A admission routinely are audited by private audit contractors who have the authority to reclassify a Hospital’s decision to admit a patient and determine the admission was “not medically necessary”. In those circumstances, the hospital may lose the ability to be paid by Medicare for the cost of care. As a result, hospitals are, not surprisingly, gun shy about admitting a patient if the need for admission is not crystal clear.
How you get into the trap. Amazingly, in most instances you may not know you are being treated as on “observation status” because, in most instances, Medicare rules do not require the hospital to tell you. You may be at the hospital for several days and may learn, days, weeks, or months later that the hospital had coded you under “observation status”.
How to Avoid the Trap:
1. You must inquire if the Medicare patient has been formally “admitted”.
2. If not “admitted”, have your primary care physician call the hospital staff physician to make the case for inpatient admission.
3. If unsuccessful, contact your attorney to assist with making the case.
4. Watch your mail for the Medicare Summary Notices (MSNs) that arrive quarterly and show the disposition of Medicare claims. You have appeal rights if you believe you improperly were coded as being on “observation status”.
How your hospital status impacts the cost of care in a Skilled Nursing Facility (SNF):
- Medicare will only cover the care you receive at a SNF if you arrive at the SNF after being discharged from the hospital after a “qualifying hospital stay”.
- A “qualifying hospital stay” means that you were admitted to the hospital for three days in a row. The qualifying hospital stay starts on the day you are admitted as a hospital inpatient. The day you are discharged is not counted.
- If you were not admitted to the hospital as an inpatient for at least three days, Medicare will not pay for the care you receive in a SNF. The SNF will request that you pay out of pocket to cover the cost of your care.
What hospital expenses do you pay as an “admitted” patient if you have what is referred to as “traditional” Medicare Part A and Part B?
- Medicare Part A (Hospital Insurance) covers hospital services to admitted patients. In most situations, this means you pay a one-time deductible for all of the hospital services you receive for the first sixty (60) days that you are in the hospital. If you are in the hospital longer than 60 days per spell of illness, you will be required to pay for a portion of the cost of care. For example, during days 61-90, your daily co-payment amount is $296.00 in 2013. If you have a Medigap policy, that will cover all or part of the co-payment amount.
- Medicare Part B (Medical Insurance) covers most services admitted patients receive from doctors. After paying the Part B deductible ($147.00 in 2013), you also pay 20% of the Medicare approved amount for physician’s service s.
What hospital expenses do you pay as an “outpatient” because you have been coded as being under “observation status” if you have “traditional” Medicare Part A and B?
- Since you have not been admitted as an inpatient, Medicare Part A will not be applicable at all. Instead, you will be billed as an outpatient. Medicare Part B (Medical Insurance) covers outpatient hospital services; however, you must first pay the Part B deductible ($147.00 in 2013), and, as well, you will pay a co-payment (generally 20% of the Medicare approved amount) for each and every service you receive. This can add up quickly. As described above, Part B also will cover most doctor’s services, but you also pay 20% of the Medicare-approved amount for doctor’s services.
- Prescription Drugs: If you had been admitted as an inpatient, prescription drugs furnished by the hospital pharmacy would be covered by your Part A insurance. If you are an outpatient, however, and you don’t have Medicare Part D coverage, you will be uninsured for drugs furnished by the hospital pharmacy and will be billed for the complete cost of those drugs. Even if you have Part D coverage, if the hospital pharmacy does not participate in your Part D plan, you will be responsible for the cost of the drugs. This can be very costly.
What if you have a Medicare Advantage Plan? The dilemma created by being treated as an outpatient because you are on observation status is the same as “traditional” Medicare Part A and B, but the deductibles and co-payment amounts may differ, depending on the specific terms of your plan.
Federal legislation: House bill H.R.1543 and Senate bill S. 818, are called the “Improving Access to Medicare Coverage Act of 2011”. Both bills have been introduced in Congress, but have not gone any further. The bills contain identical language that would provide that all time you physically spend in the hospital, whether called inpatient or outpatient, would count towards the three-day qualifying hospital stay that would lead to coverage for a subsequent SNF admission.
Links to more information: You can learn more about “observation status” and its implications on the following websites: