Patients Under Observation Face Costly Medicare Trap

Last month, my colleague Chris Pierson wrote about why it’s essential to have an advocate on hand when you enter a health care institution. His post focused on how often patients are harmed by preventable treatment mistakes in hospitals, rehab centers, skilled nursing facilities and nursing homes.

There is another kind of danger that patients and their families urgently need to be aware of though: threats to their financial health. News coverage of two recent developments – a new law and a recent court ruling – illustrate the point.

Paying after days of “observation” in the hospital

Thousands of people who have Medicare as their health coverage have found themselves with huge medical bills for nursing home stays because, while they were hospitalized for days or even weeks, and sent from the hospital to a nursing home or rehab facility, they had never been officially “admitted” to the hospital in the first place.

Over the past several years Medicare began paying hospitals less when patients are readmitted within a short period of time. As a result, hospitals now often categorize patients as “under-observation” – a category that technically means they are an “outpatient,” even if they are staying in the hospital for days or weeks. Hospitals do this rather than risk the financial penalty Medicare imposes for frequent readmissions.

The cost nightmare for patients arises because Medicare will only pay for nursing home care after someone has been admitted to a hospital for  at least three nights; patients who are hospitalized for “observation” are not eligible for nursing home coverage – no matter how long their hospital stay.

Many of these patients have no idea they have not been admitted to the hospital, nor do they know that, as a result, they are financially responsible for any subsequent nursing home stays and other costs – until they receive the enormous bills.

In an effort to solve this problem, Congress passed a law, which is now in effect, that requires hospitals to tell patients, within 24 hours of entering the facility, if they are classified as “under observation,” rather than “admitted.” This is a step in the right direction, I suppose. But the question then becomes, what can someone who is sick and hospitalized do about it when they are already at their most vulnerable?

A 2014 article on avoiding observation status makes clear that it can involve a huge fight. “I would talk to anyone who would listen to me,” Terry Berthelot, a senior attorney at the Center for Medicare Advocacy, told The New York Times. “Make as much noise as you can.” She also suggests involving your regular doctor in advocating on your behalf but adds that you may need to hire a geriatric care manager to persuade the hospital to admit you or get “a strongly worded letter or call from a lawyer” to convince the hospital.

Clearly, this is one more reason why it’s essential to have an advocate at your side when you are injured or sick.

Update: On July 31, 2017, a federal court certified a plaintiff class of all Medicare recipients who’ve been hospitalized under observation status since January 1, 2009. According to The New York Times, “That means hundreds of thousands of people . . . will be eligible to join a lawsuit against the Centers for Medicare and Medicaid Services,” challenging this practice.

The “Failure to Improve” Standard

Medicare patients also need to know that they cannot be denied coverage – or asked to pay out-of-pocket – for treatment they need to maintain their current state of health. Since the settlement of a lawsuit in 2013, Medicare has been required to cover care and therapy that is “necessary to maintain the patient’s current condition or prevent or slow further deterioration.” Yet, as Paula Span, who writes about aging, health care and disability for The New York Times, pointed out earlier this month, health care providers continue to deny patients treatment – or demand payment directly from patients – under the mistaken belief that Medicare will only pay for treatment that improves the patient’s health.

This summer a federal court ordered the Center for Medicare and Medicaid Services to do a better job of informing healthcare providers that the “failure to improve” standard is dead but, again, without an advocate, people who are hurting may have difficulty getting services they need and are entitled to.

If you are an ICS member, you should never be asked to pay a provider directly for services. If you have questions about your coverage your first call should be to your care manager. It’s also important to understand how to communicate with your doctor as well as how you can be an effective advocate for yourself.

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