OBSERVATION STATUS: When is a Hospital Stay Not a Hospital Stay?

This article is based on my mom’s suggestion. Her Aunt Bea was recently hospitalized and was subsequently discharged to an acute care facility. My mom was wondering why her aunt was not formally admitted as a hospital patient even though she spent over three days occupying a hospital bed. She suggested that I should write about the issue of “observation status” because none of her friends have heard about it. Therefore, mom, this is for you and Aunt Bea:

Lately, many patients discharged from hospitals have received a surprise: Medicare would not pay for follow-up nursing home care because they do not have the prerequisite three days of inpatient care. Many patients are simply admitted for observation.

However, many hospital patients are unaware that they are not deemed to be a hospital inpatient. People have no way of knowing they have not been admitted to the hospital. They go upstairs to a bed, they get a band on their wrist, nurses and doctors come to see them, they get treatment and tests, they fill out a meal chart, so they assume that they have been admitted to the hospital.

Yet some hospitals keep patients under observation for days, and that decision can have severe consequences. Medicare considers observation services outpatient care, which requires beneficiaries to cover a bigger share of drug costs and other expenses than they would when receiving inpatient care. Unless patients spend at least three consecutive days as an inpatient, Medicare will not cover follow-up nursing home expenses after discharge.

Claims from hospitals for observation care have grown steadily and so has the length of that care. The most recent data show claims for observation care rose from 828,000 in 2006 to more than 1.1 million in 2009. At the same time, claims for observation care lasting more than 48 hours tripled to 83,183.

The trend is emerging as hospitals cope with increasing constraints from Medicare, which is under pressure to control costs while serving more beneficiaries. In addition to more stringent criteria for inpatient admissions, hospitals face more pressure to end over-treatment, fraud and waste.

Many patients are not told by hospital officials that they haven’t been admitted. (Medicare does not require such notification.) And the designation can change during a person’s hospital stay. Sometimes a physician who hasn’t seen the patient will determine that the case does not merit inpatient status; Medicare requires that patients whose status is downgraded must be informed.

Even if patients know they are observation patients, there is little they can do to change their status. Medicare has covered their care on an outpatient basis, so they have not been refused benefits.

Pressure to increase the use of observation status may also come from the new federal regulations which includes penalties for hospitals that have unusually high rates of preventable readmissions. Because observation patients have not officially been admitted, they would not count as readmissions if they need to return.

Medicare officials are weighing changes to the admissions policy. Among the options are requiring hospitals to notify patients that their stay is considered observation, setting a strict time limit for observation care and changing how the agency pays hospitals for such care.

Medicare recommends that if you are in the hospital more than a few hours, always ask your doctor or the hospital staff if you are an inpatient or an outpatient.

Medicare has a pamphlet about observation status that is available online at http://www.medicare.gov/publications/pubs/pdf/11435.pdf.