Is the Medicare Observation Stay Costing You Money?

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My father was admitted to the hospital twice in one year for the same type of illness. The second bill was a little more than half the amount of the first one, but Medicare paid hardly any of it.

And although his doctor recommended he go to a rehabilitation center after the second hospital stay, his Medicare wouldn’t cover it.

It doesn’t make sense that my father receives the same treatment but is billed differently, and Medicare pays differently. What is going on?

The Medicare Observation Stay

It sounds like your father’s second hospital visit was classified under the Medicare observation stay. In an effort to comply with Medicare laws and penalties on readmissions, hospitals are increasingly utilizing the observation stay classification.

What this means is that, because hospitals are penalized for repeat admissions, Medicare patients’ chances of being admitted to the hospital or kept for observation are not based on length of stay or illness, but on the hospital’s likelihood of incurring the penalty. This was verified by a Health and Human Services study, which notes:

“CMS (Centers for Medicare and Medicaid Services) and others have raised concerns about hospitals’ use of observation stays and short inpatient stays. They are concerned about beneficiaries spending long periods of time in observation stays without being admitted as inpatients. In particular, they are concerned that beneficiaries may pay more as outpatients than if they were admitted as inpatients. Moreover, beneficiaries who are not admitted as inpatients may not qualify under Medicare for skilled nursing facility (SNF) services following discharge from the hospital. In addition, CMS is concerned about improper payments for short inpatient stays when the beneficiaries should have been treated as outpatients.”

The result, as you experienced, is that patients’ stays are not covered by Medicare Part A, but instead are covered by Medicare Part B. You may have higher costs and co-pays, and Medicare will not pay for post-hospital rehabilitation services.

Fixing The Problem

On April 1, 2017, new rules were implemented. If your parent is in the hospital for more than 24 hours, he must be notified that his stay is classified as an observation stay. In addition, hospitals and physicians were instructed that all patients who are expected to need care for more than two midnights should be officially admitted.

Unfortunately, your father can’t appeal these charges, although there are other options if he received services after January 1, 2009.

The bottom line on this issue is to be sure to clarify your father’s hospital status and to question and appeal it if you feel it is being used inappropriately. The Center for Medicare Advocacy has a complimentary self-help packet that can assist you if you need it.

We hope this helps!