Inpatient vs. Observation: What Medicare Beneficiaries Need to Know

Hi blog readers!  It's Heather Heppner with the AARP Illinois Communications Team back with your weekly health care post.  This week we're covering a topic that's critically important to all you Medicare beneficiaries.....Observation Status.  So what is it and why is it important?

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Imagine this scenario....

You're on Medicare.  You break your leg and spend 3 nights in the hospital.  You get discharged to a skilled nursing facility for rehab.  You spend 45 days at the skilled nursing facility receiving therapy and are then discharged home. You get a bill in the mail from the skilled nursing facility....$9,000! What!?!? Isn't Medicare supposed to cover the cost of rehabilitation in a skilled nursing facility (provided that you spend 3 nights in a hospital)? Yes.  So, what happened here?  What happened is that you were never actually admitted to the hospital as an inpatient.  You were admitted under "observation status."  And observation doesn't count towards your three night hospital requirement in order to receive skilled care.  You're stuck with the bill.

Unfortunately, scenarios like this are becoming more common.  According to a November 2013 AARP Public Policy Institute study, the use of "observation status" for Medicare beneficiaries is on the rise.  Between 2001 and 2009, Medicare claims for observation services grew by more than 100%.  The duration of observation service visits has also increased.  Observation service lasting 48 hours or longer had the greatest increase - over 250%.  So what does this mean?

The magnitude of these changes raises concerns that observation is becoming a substitute for inpatient admission.  Unlike inpatient coverage, there is no limit on what a Medicare beneficiary may have to pay for observation services in a hospital.  As in the example above, beneficiaries could also be stuck with huge bills for skilled follow up care.  Some patients may even forego needed skilled care because of the associated cost.

The good news is that bipartisan legislation has been introduced in both the House and Senate to count the time spent in observation toward the three-day hospital stay requirement. The legislation, the  Improving Access to Medicare Coverage Act of 2013 (H.R. 1179/S. 569), has been endorsed by AARP.

Until next week....be healthy!

~Heather