Observation stays don't count for Medicare coverage, many seniors harshly learn
Betty Rickett was surprised by a $15,000 nursing home bill after spending three days in a hospital for a broken ankle in 2009.
The 85-year-old from Wellsboro in Tioga County knew that her health insurer, the federal government's Medicare program, covers the cost of rehabilitation care in a nursing home if the patient was admitted to a hospital for at least three days.
What she didn't know was that time spent in a hospital bed under observation doesn't count toward the three-day minimum needed for Medicare coverage. Medicare requires patients to be admitted to a hospital — and being under observation does not count.
It is a lesson that hundreds of thousands of elderly and sick Medicare beneficiaries are learning every year, according to the Office of the Inspector General for the Department of Health and Human Services.
“I just couldn't believe it,” Rickett said. “I was definitely in the hospital. I had to have surgery. I had a rod and a plate put in my foot.”
An estimated 600,000 Medicare beneficiaries spent three or more nights in hospitals last year but did not qualify for nursing home stays under Medicare rules, according to the July report from the Inspector General.
“There have been reports of beneficiaries in observation stays who incurred bills from (skilled nursing facilities) for tens of thousands of dollars because they did not qualify for SNF services under Medicare,” the report said.
The problem is a growing concern because hospitals are increasingly classifying parts of hospital stays as outpatient observation stays. Rickett didn't learn that until she was in the nursing home for daily rehab to get her walking again — but she had no other options.
Like Rickett, most people who are hospitalized never know they are under observation and not admitted. A patient in observation status typically gets the same care as an admitted patient — they're given a hospital bed, treated by doctors and nurses, and probably hooked to machines, said Toby Edelman, a senior policy attorney with the Center for Medicare Advocacy in Washington.
“Basically, the issue is that people are in an acute care hospital; they're in a bed receiving care and they think they are inpatients,” Edelman said. “The care (as an outpatient) is indistinguishable from an inpatient.”
The use of observation stays is becoming a common practice, Edelman said. The government and private insurance companies are trying to clamp down on runaway health care costs by scrutinizing short inpatient hospital stays and paying only for admissions deemed medically necessary.
“If they decide someone should have been called an outpatient, the hospital gets no reimbursement,” she said.
The reimbursement can be three times higher for a short inpatient stay than for an observation stay, the Inspector General found. Medicare last year paid an average of $5,142 for an inpatient stay of less than two nights. A similar stay under observation cost Medicare an average of $1,741.
The risk of losing that money has led to hospitals erring on the side of caution and keeping people under observation status longer.
Hospitals across Western Pennsylvania have complained for years about the growing use of observation stays because the practice cuts into their revenue, which is being squeezed by lower government reimbursements and higher levels of bad debt and charity care.
“Hospitals are keeping patients in observation stays because they won't be paid for an admission,” said Deborah Brodine, president of UPMC's Community Provider Services, a division of the giant health system that runs six nursing homes around Western Pennsylvania.
A bill pending in the U.S. Senate seeks to change Medicare rules to allow observation stays to be counted toward the three-day total.
“Being hospitalized is a stressful time for seniors and their families,” said Sen. Bob Casey, D-Scranton, a cosponsor of the bill.
“Getting a medical bill for thousands of dollars after a hospital stay only adds to the stress of an illness,” Casey said. “The overuse of observation status harms seniors and families.”
Rickett learned that Medicare wouldn't cover her nursing home stay soon after arriving there, but said she felt she had no choice but to stay and figure out payments later.
“I couldn't do anything on my own,” she said of her confinement to a wheelchair while her ankle healed.
Once recovered and at home, Rickett said she tried to start paying down her debt but eventually filed for bankruptcy.
She was behind on bills, and the nursing home debt pushed her finances over the edge.
Several years later, she said, “I'm doing fine now. ... I don't have the bills I had before.”
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or firstname.lastname@example.org.
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