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Bid to Alter Confusing, and Sometimes Costly, Medicare ‘Observation' Status Gains Support

February 11, 2014
In The News

As Rep. Joe Courtney, D-Conn., sees it, more of his colleagues are becoming aware of the ill effects that can occur when hospitals tell Medicare that a person who spent days being treated within their walls was not an “inpatient.” Courtney and many advocacy groups say that when hospitals instead slot patients as receiving “observation” services, that can deprive them of needed follow-up skilled nursing care. Or, it can cost them dearly if they use these services as after a hospital stay.

Looking at 2,097 cases where Medicare didn’t pay for care in skilled nursing facilities following hospital stays, the Inspector General of the Department of Health and Human Services came up with an average cost of $10,503 in charges for which these patients were liable. The patients analyzed included those getting observation services. Courtney has successfully made these arguments to draw more than 110 Democrats and more than 20 Republicans as supporters of his bill on observation status. Among the groups backing his bill are AARP.

“It has been building steam,” Courtney said on a Tuesday call with reporters. The bill (HR 1179) would change the current system in which Medicare does not count observation status toward the required three days of hospitalization to get coverage for subsequent care in skilled nursing facilities. Medicare then would pay for more people in skilled nursing facilities. But this could help the program save money in the long run, said Ann Sheehy, a doctor who spoke on behalf of the Society for Hospital Medicine on the call with reporters.

By missing out on skilled nursing care, people classified as under observation may be more likely to need treatment again at hospitals later, she said. Often, skilled nursing care would have taken care of the issues that put these people’s health at risk, she said. “These patients deserve this,” said Sheehy. Courtney said the quickest path for getting observation status counted toward the three-day rule on skilled nursing care would be to attach the language from his bill to a larger measure intended to overhaul how Medicare pays physicians. Lawmakers are working on a bipartisan measure, (HR 4015, S 2000), known as the doc fix deal. Courtney added that he is talking with members of the Ways and Means Committee about his bill and noted that the sponsor of the Senate companion measure (S 569), Sherrod Brown, D-Ohio, serves on the Finance Committee.

Hospitals are using observation status more often because of their concerns about recovery audit contractors, or RACs, Toby S. Edelman, senior policy attorney for the nonprofit Center for Medicare Advocacy, told reporters on the call (See related story, CQ HealthBeat, Dec. 6, 2013). Hospitals risk not getting paid by Medicare at all if these contractors later successfully challenge their decision to classify patients as inpatients, who are covered by Medicare’s Part A, Edelman said (See related story, CQ HealthBeat, Feb. 7). In some cases, hospitals are encouraging doctors to keep patients in observation status, so that treatment given to them will at least be covered under Medicare’s Part B, meant for outpatient care, she said.