Lawmakers try to eliminate Medicare coverage technicality

Some patients are left with big bills from skilled nursing facilities after hospital stays under observation status.

By Charles Fiegl — Posted Nov. 7, 2011

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A Medicare patient left in observation for days, instead of being admitted as a hospital inpatient, has caused financial hardships for those receiving subsequent skilled nursing facility care, a group of lawmakers say.

Medicare covers the facility care when someone has been a hospital inpatient for at least three consecutive days. But Medicare coverage is not extended to those patients held in observation at the hospital, which is an outpatient service that does not require admission. Patients and their families unfamiliar with the coverage technicality sometimes find out about it only when they receive an invoice from a nursing facility.

Lawmakers are attempting to eliminate the distinction between observation and inpatient status for the purposes of determining skilled nursing facility care coverage. In April, Rep. Joe Courtney (D, Conn.) and Sen. John Kerry (D, Mass.) introduced legislation that would count a patient's time spent in the hospital under observation toward the three-day hospital stay minimum for skilled nursing care coverage. It also would create an appeals process for patients who are denied Medicare coverage.

Courtney hosted an Oct. 20 Capitol Hill briefing to discuss aspects of the legislation with other lawmakers' staff, as well as the American Medical Association, the Center for Medicare Advocacy, the American Health Care Assn. and the American Medical Directors Assn.

The bills have bipartisan support, with 13 co-sponsors in the House and four in the Senate.

The AMA wrote an April 15 letter supporting the legislation. A change in Medicare policy is needed because hospitals classify patient stays in a manner that creates more financial exposure for patients, the Association said.

"For patients, a reclassification from 'admitted' to 'observation' can result in unanticipated patient co-payments, and in the case of skilled nursing facilities, which require a prior three-day hospital admission, a substantial and unanticipated financial burden," wrote then-AMA Executive Vice President and CEO Michael D. Maves, MD, MBA.

Hospitals sometimes will change the patient's status because Medicare recovery audit contractors and other auditors have targeted inpatient admissions for review, Dr. Maves said. "In an attempt to avoid audits and denials, hospitals have started using screening software to make decisions regarding whether an individual's condition is severe enough, or the services provided are intense enough, to be admitted to a specific level of care."

The Dept. of Health and Human Services Office of Inspector General is planning to audit Medicare payments for observation care. The OIG included observation care in its 2012 work plan for audits and investigations. The inspector general will assess the appropriateness of the services and its effect on Medicare patients' out-of-pocket costs.

"Improper use of observation services may subject beneficiaries to high cost-sharing," the OIG said.

The Center for Medicare Advocacy, a patient support organization based in Willimantic, Conn., has seen a number of cases in which Medicare beneficiaries have been adversely affected by outpatient status designations despite long hospital stays. For instance, one Connecticut man was in the hospital for five days and later was moved to a skilled nursing facility. His wife reported being in tears when a physician and social worker explained that Medicare would deny payment because he never was admitted to the hospital.

"The difference in terminology makes all the difference in the world," said Toby Edelman, a senior policy attorney for the center.

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Rapid growth of observation care

Utilization of observation services has risen rapidly in recent years, prompting concerns from administration officials and lawmakers. The billing of three physician services commonly reported on claims during observation care has increased by 38.7% since 2008.

Annual claims
Service code 2008 2009 2010
99218 89,529 95,829 113,476
99219 279,746 316,392 373,425
99220 389,089 462,908 565,190
Totals 758,364 875,129 1,052,091

Source: Part B National Summary Data File, 2008-10 (link)

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