● Medicare Shift: What you don’t know about Observation vs. Inpatient status could cost you

By Carol Barton

Understandably, when you are admitted to a hospital you may consider yourself an inpatient because, after all, you are in a hospital bed and receiving nursing care. But your patient status may have been classified as “Observation” which actually means you are an outpatient.

Medicare patients need to understand how costly it could be if the hospital classifies your status as “Observation” rather than as an “Inpatient.” Understanding the consequences of that decision is important.  Observation status means that you are an outpatient; consequently, Medicare will pay your benefits accordingly leaving you to pay much more out-of-pocket than if you were classified as an inpatient. Let’s review how this could impact you:

  • Rehabilitation/ Nursing Home Care:
    • Assuming that you need rehabilitation following hospitalization Medicare will only pay for care in a skilled facility after a three day consecutive stay in the hospital as an inpatient. Even if you are hospitalized for that time but are classified as under observation, Medicare will deny coverage for rehabilitation leaving you to either opt out of treatment or to pay thousands of dollars on your own.
    • If you need nursing home care for an extended time and have not been properly classified as an inpatient and have not been hospitalized for three full days – you would not qualify for Medicare benefits.
  • What Observation Status Means: While you are hospitalized, you could incur unexpected costs (co-pays) for drugs, X-rays, lab and other hospital treatments. Most hospitals will not allow patients to bring in their own drugs; in one instance a woman was billed $442 a day just for drugs that would have cost a fraction of that had she been able to take her own meds.
  • Notification: Surprisingly most patients are not informed of their classification, if the status is observation you have virtually no time to react. In some cases when patients are notified, many do not fully understand the implications because they are receiving the same care as others consequently, they do not challenge the classification.

The pressure is on for hospitals and physicians to classify many Medicare patients under observation status; often that pressure is so pervasive that even when a patient qualifies as an inpatient, the hospital chooses the observation classification – just to be safe and ensure they receive payment for your treatment. Additionally, when doctors classify someone as an inpatient, the hospital will often overrule them. Use of the observation status is growing: According to a nationwide analysis of Medicare claims published by researchers at Brown University in the Journal of Health Affairs, the rate of classifying patients under observation rose 34 % from 2007 through 2009.

Suggestions on how you, or a family member, should handle the situation when you are hospitalized:

  • Immediately ask about your patient status and then ask again as long as you remain in the hospital; remember that your status can change from day-to-day
  • If your status is observation, ask the hospital doctor how he/she arrived at that classification and ask that it be changed to inpatient status
  • If you still disagree with their decision, contact your personal physician and ask him/her to intercede on your behalf
  • Request a hearing with the relevant hospital committee

Please understand that this can happen to you and I cannot emphasize enough how costly it will be for any Medicare recipient who is capriciously classified as being under observation. Take charge of your care and classification and if your actions fail – do not hesitate to contact an elder law attorney to help.

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