More needs to be done to address ‘Observation Status’

Imagine that your mother falls at home. She goes to the hospital for care, and is instructed by her doctor to complete three weeks of post-hospital rehabilitation is a nursing home. When it comes time to leave the hospital, however, she’s told that because she wasn’t technically an “inpatient” when she was in the hospital, Medicare won’t cover her nursing home rehab – forcing her to decide to forego this care or to figure out how to foot the bill. This injustice is caused by “outpatient Observation Status.” It has impacted thousands of families across the country. Thankfully, some state governments are taking action.

On June 12, 2014, Connecticut joined New York and Maryland in requiring hospitals to give oral and written notice to patients classified as “outpatient” on Observation Status for 24 hours or more. Connecticut’s law requires that the notice include: a statement that the patient has not been admitted to the hospital as an inpatient, but is under Observation Status; a statement that Observation Status may affect the patient’s Medicare, and other insurances, costs and care; and a recommendation that the patient contact his or her health insurance provider or the state’s Office of the Healthcare Advocate for further information and help. 

{mosads}The Center for Medicare Advocacy hopes that other states will follow the example of Connecticut, New York, and Maryland to require that hospitals give notice when patients are put on Observation Status.  These laws at least inform Medicare beneficiaries in advance about Observation Status, allowing them time to take action and plan accordingly. However, more than notice is needed. Even with state-mandated notice, Observation Status itself will continue.

Classifying Medicare hospital patients as “outpatients,” on Observation Status, means they lose coverage for medically necessary post-hospital nursing home care. This is because Medicare requires a prior three-day inpatient hospital stay to qualify for post-hospital nursing home coverage. Without this coverage, Medicare beneficiaries not only have to deal with their physical recovery, but also deal with exorbitant out-of-pocket costs for needed care. Even with the new state laws in place, the Center for Medicare Advocacy continues to field calls from older people and their families who are denied Medicare coverage because of this erroneous classification.

The good news is there is a simple solution. If Medicare counted all time spent in the hospital toward the three-day qualifying hospital stay, no matter how it is coded for billing purposes, the worst harm caused by Observation Status would be alleviated. To this end, Rep. Joe Courtney (D-Conn.) and Sen. Sherrod Brown (D-Ohio) have introduced H.R. 1179 and S. 569, the Improving Access to Medicare Coverage Act of 2013. If passed, Medicare would be required to count all time spent in the hospital toward the three-day qualifying hospital stay required for nursing home coverage. 

There are other proposals in Congress regarding Observation Status, including Rep. Jim McDermott’s (D-Wash.) bill, the Fairness for Beneficiaries Act (H.R. 3144), which seeks to modernize the traditional Medicare program by eliminating the three-day inpatient qualifying stay requirement.  This would be excellent news for Medicare beneficiaries – and long overdue. However, Courtney’s bill, with 150 co-sponsors in the House and 23 in the Senate, is currently the best hope for change to this harmful practice, and we urge Congress to pass this legislation now. In the meantime, the Center for Medicare Advocacy encourages other states to pass laws requiring hospitals to notify patients when they are classified as observation “outpatients.”

Individuals who are affected by this “outpatient” status can get information and review our self-help packet here. 

Stein is the founder of the Center for Medicare Advocacy, Inc. She is the editor and co-author of books, articles, and other publications regarding Medicare and related issues including the Medicare Handbook (Aspen Publishers, Inc., 14th Edition, 2013; update annually) and blogs at cmahealthpolicy.com. She is a past-president and a Fellow of the National Academy of Elder Law Attorneys (NAELA) and a past commissioner of the American Bar Association Commission on Law and Aging.