How observation admissions affect Medicare patients

A revealing article in Bloomberg recently described the latest way in which elderly patients are getting screwed by the system.

Medicare reviews all admissions and if the patients don’t meet indications for admission, the hospital doesn’t get paid by Medicare. Medicare has also recently implemented a mercenary system called Recovery Audit Contractors (or RAC for short) in which third parties audit hospital charts to see whether Medicare “overpaid” for a patient’s visit. If the auditor finds an “overpayment”, the auditor gets to keep a percentage of that overpayment.

Just as an aside, most states have laws against percentage “fee splitting” such as this since paying someone on a percentage basis creates a conflict of interest that encourages the contractors to do things to enhance their income.

Hospitals have the ability to classify Medicare patients as an “observation” admission during the patients’ stay. “Observation” admissions are apparently paid at a lower rate, but don’t come under as much Medicare scrutiny. Additionally, under Medicare rules, “observation” patients may have to pay a 20% co-payment that wouldn’t be required if they were admitted. Medicare “observation” patients also have to pay full price for any subsequent care that is rendered after they have been discharged.

For example, if a Medicare patient needs a nursing home care or physical therapy after a hospital stay, Medicare will pay if the patient has been admitted for three days or longer and will not pay if the patient is classified as an “observation” stay. The Bloomberg article gives an example of one 76 year old patient who was saddled with more than $36,000 in bills based on his “observation” stay for eight days.

Another 90 year old woman was billed more than $11,000 after fracturing her hip and then undergoing five weeks of physical therapy so that she could walk again. Sorry, grandma, you weren’t admitted. You were only “observation.” Pay up.

If a patient is a borderline case, hospitals appear to be leaning toward keeping patients in “observation” status. The number of patients receiving the “observation” designation doubled between 2006 and 2008.

Also note how Medicare is planning to penalize hospitals that re-admit too many patients, which will only increase the number of patients classified as “observation” status.

On one hand, hospitals get paid more for admitting Medicare patients. On the other, hospitals could be accused of false claims and penalized for admitting Medicare patients who don’t meet Medicare’s strict admission criteria. Medicare’s RAC mercenaries will be combing through charts because they have a financial incentive to find patients who have been “inappropriately” classified as “admissions.”

So hospitals play it safe and classify more and more Medicare patients as “observation” status.

Who gets stuck in the middle?

The patients … many of whom worked their lives and paid into a system so that they would have medical care when they reached age 65.

Now they’re finding that they only have “insurance.”

WhiteCoat is an emergency physician who blogs at WhiteCoat’s Call Room at Emergency Physicians Monthly.

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  • SmartDoc

    The usual outstanding Whitecoat analysis: one of my favorite bloggers in the Internet, along with KevinMD.

    With the $600 billion dollars in Medicare cuts mandated by the deceitfully misnamed “Patient Protection and Affordable Care Act,” these current abuses will escalate greatly in the coming years.

    A frail ninty year old is simply not equipped to deal with, or appeal this horrorific new development.

    One other galling corruption: “PRG-Schultz”, one of the biggest recovery audit contractors, is owned by U.S. Senator Dianne Feinstein, D-Calif.

    • rwatkins

      ‘With the $600 billion dollars in Medicare cuts mandated by the deceitfully misnamed “Patient Protection and Affordable Care Act,” ‘

      Primarily from over-payments to Medicare Advantage plans, that use spa memberships and pedicures to lure only the healthy to their third floor (no elevators) enrollment offices.

      • Smart Doc

        The $600 billion in Medicare cuts in ObamaCare is going to come from eliminating “spa memberships and pedicures”?

        You may have a tiny bit of trouble documenting this!

        • rwatkins

          That’s not what I said. Read my post, Smart Doc.

  • paul

    “we didn’t say the patient doesn’t need to be admitted. we just said we’re not going to pay for it.”

  • solo dr

    Patients don’t get it. A patient may be placed in observation one night and then get two admission nights and then not qualify for a skilled nursing stay. Currently nursing homes charge $200-$300 a day simply to board you, not including IV treatments or other care. The hospitals have cracked down on admission stays, and even stroke/TIA patietns are out in a day or two.

  • ninguem

    Expanding on Diane Feinstein’s husband’s interest in PRG-Schultz:

  • Carol Ann Platts

    I had never heard that an admission for observation was not paid for by Medicare. My 86 year old mother was admitted “for observation.” I was told I (as her Power of Attorney) had no right to appeal her discharge as premature because she was only admitted “For Observation.” She was readmitted within 72 hours with a heart attack.

    Patients usually sign a document that explains the right to appeal a premature discharge. I did not notice that I was not asked to sign that particular piece of paper when my mother was admitted. No one mentioned her admission was “For Observation” until I wanted her to remain hospitalized.. I was shocked when I learned that she did not have the same rights as other Medicare patients, At least I didn’t get a bill for that stay because she was readmitted so soon.

    I know it means yet another form, but patients need to be advised that their rights and responsibilities are different when an admission is for observation. But that wouldn’t benefit anyone but the patient, so I my guess is that it will never happen.

    • AnnR

      Hospitals are quick enough to tell you when Medicare isn’t going to pay. Just because Medicare will pay for an observational stay doesn’t mean they shouldn’t be quick to tell you whether you are there under observation or admission. They know.

      My dad was hospitalized recently and I had read about this in the paper and asked my mother if he’d been admitted or was just there for observation — and she had no idea what I was talking about.

  • Steven Reznick MD FACP

    My 86 year old dad with hypertension, hyperlipidemia, barrets esophagus and moderate cognitive dysfunction called 911 with chest pain at 2:45 AM. The paramedics checked him out and advised a visit to the ER. My wheelchair bound 83 year old mother was in no position to do anything but comply. He was taken to Hollywood Memorial in Hollywood, Florida where the ER staff did not call his personal primary care physician of fifteen years but made a mistake and called the hospitalist. He was kept in the ER for seventeen hours as an outpatient observation. When an MI was ruled out by EKG and enzymes he was moved to the floor. Twelve hours later after an ultrasound of the gall bladder showed a thickened wall and a big stone ( I am told he had normal liver function tests and a normal WBC) he was taken to the OR for a lap cholecystectomy. The next day his surgeon came in after noon and told him he was ready for discharge. He had not eaten anything other than clear liquids, he had not ambulated, he had not moved his bowels. When my mother objected, his PCP said unless you take him home now, Medicare will not pay for the stay and you will need to pay for the care out of your pocket. He was discharged with no home health services or evaluation performed. The discharge process , started after 5PM resulted in him not arriving home ( a ten minute drive) until almost 11 PM.
    A wound care nurse came in the next afternoon. Her supervisor called me to say she thought he was discharged prematurely and should have gone to a rehab facility until he demonstrated he could ambulate and get to the bathroom. Medicare law apparently allows you to go into an SNF after a three day hospitalization for up to 30 days after discharge if you have the 3 day inpatient admission. When we reviewed the matter his first 17 hours were treated as an observation. That plus the abrupt discharge left him hours short of the required three days. When I called his PCP she blamed the hospital and coding people. When i spoke to the hospital social worker , coders and medical director they blamed the PCP who had the opportunity to make the first 17 hours an admission and had the criteria but did not.
    While I blame the overworked PCP and the hospital system the fault is ultimately mine for living a bit too far away to spend enough time at the hospital to detect the shennanigans . I usually request permission to review the chart but this time out of respect for his doctor took a background role. I was wrong.
    Had my dad been a patient in my practice I would have fought tooth and nail to get him the benefits he earned. I do not mind being considered a tough SOB by hospital administration when I am an advocate for my patient especially since they meet criteria.
    In my thirty plus years of internal medical practice I find patients bounce back for readmission when they do not follow instructions. Non compliance is usually the top ten reasons. The diagnosis may be listed as CHF or arrythmia or urine infection and sepsis but the real explanation is that someone didnt follow instructions. If hospitals are going to be penalized for these situations we can only expect more predatory behavior , abrupt discharges and manipulation of the system as the baby boomers age. As their physicians become employed shift workers of the hospital or Accountable Care Organization with no longitudinal relationship with the elderly patients, the likelihood of this situation getting worse will increase. There will be no patient advocates unfortunately !

    • Smart Doc

      It pains to hear of your dad’s mistreatment.

      Your analysis of Medicare’s near future is spot on.

      This is not just of academic interest. We all face the same bad care as we age out and are dumped into the Medicare system.

    • rwatkins

      “When my mother objected, his PCP said unless you take him home now, Medicare will not pay for the stay and you will need to pay for the care out of your pocket.

      While I blame the overworked PCP”

      I don’t understand.

      Your father was admitted to the hospitalist for a surgical problem, and you blame his PCP for the poor post-op care? (Not that I approve of the care your father received)

      • Steven Reznick MD FACP

        The PCP was called by me the next day after she did not show up to see my father. The patient was transferred to her service. she is an internist/geriatrician. She worked up his GI tract after the cardiac enzymes were negative and the gastroenterologist she called in diagnosed the gall bladder stones and thickening of the wall. The PCP called in a surgeon who saw the patient in consultation and recommended surgery.

  • Carol Ann Platts

    Steven Reznick MD FACP
    I was interested in your comment “There will be no patient advocates unfortunately ! I would like to know why you say that. ( I am not being defensiveI. I fear that you are right.)
    I took three master’s level courses toward receiving a “certificate” for patient advocates. The courses were based on events that have happened during the past fifty years. I have not gone back to the program, because I believe that they have no idea what will be happening, and already is happening, under the guise of healthcare reform.
    In the three months I was by my mother’s side, whether in a hospital or “rehab”, I realized the courses would be totally useless–now or in the near future. I saw attempts at passive euthansia and had one doctor diciplined for saying my mother was “too old and to sick to treat.” in front of her (I’m sure they all had a big laugh about that when they “disciplined” him.). My mother was considered “over aged + 1, and I have to wonder exactly what that meant.
    I have been trying to explain in an online forum for “empowered patients” that what is being taught as patient advocacy is outdated and will quickly become more so. I have met with much resistance to the idea. They view my opinion as anti-patient advocate. Nothing could be further from the truth. I believe every patient needs someone working to protect them as much as possible.
    I also found it interesting you said “the fault is ultimately mine…”. Since most patient’s family or friends are much less knowledgeable than you about hospital “shennanigans”, do you see any way for patients to keep from being victimized, dehumanized, or whatever term you choose to use, by the system?

    • Steven Reznick MD FACP

      Patients need their physician to be their advocate. Lay persons can stand up for patients but physicians have knowledge of how their colleagues practice that most lay persons do not. Physicians know who at the Centers of Excellence is worth seeing and has substance and who isn’t.
      I think as the impersonal new health care world evolves patients will still have the option of paying for a private physician. My suspicion is that regardless of training, certification and experience , hospital administration will try to keep them from seeing their patients in the hospital for economic reasons. They will want the patient to be treated by their employed physicians only. I am not saying that the employed physicians of accountable care organizations will be impersonal or any less qualified. They will just not know the patients beyond the immediate reason for admission. When their shift is over their attachment will be over.

  • C Dahlin

    I thought you had to admit after 24 hours of observation. Am I missing something?
    Perhaps people are not remembering to write “change status to admit”?

    • Steven Reznick MD FACP

      He was admitted after 24 hours but because he was discharged abruptly and the first 24 hours did not count as in patient time, he did not qualify for Medicare post hospital services at a rehab facility. He met criteria for inpatient admission when he presented to the ER. The case manager in the ER chose to make him observation status and then he was mistakenly assigned to a hospitalist service. When his personal physician came on board she chose not to challenge the observation status.

  • ninguem

    The observation service. Is it not paid by Medicare, or paid on a different scale? Part A versus B, a different deductible, etc., I’m not sure myself.

  • C Dahlin

    It’s a different deductible.(Outpatient vs inpatient). But the hospital can’t MAKE you admit to obs. They can pressure you.
    But they can’t make you.

  • anonymous

    don’t forget to take your own medications if you are observation big bucks are charged if the hospital provides them while you are observation.
    you might be observation for many procedures even if you stay overnight.

  • KCRN63

    Observation services are paid by Medicare Part B- That means that patients will pay 20 % out of pocket. In this particular case, it cites that the RN case manager made the patient an Observation status. That is not legal. The Case manager can recommend that a patient meets certain criteria to the physician, however the physician is to determine the status of the patient based on the patient medical condition. The criteria are guidelines. They do not take into consideration the patient’s past medical history . If the patient was in the hospital as an Observation status for 8 days, then the physician is to blame #1 for not paying attention to the status. However, SHAME on the case manager for not doing a concurrent review of the patient condition and not catching the error. Mistakes like this can and will happen, hopefully the hospital will not bill the patient the full 20%. This is also a great reason for MD’s and case managers to work closely together as a team.

    Unfortunately this kind of issue is not going away, it will become more and more important due to the RAC, MAC, MIC, ZIP and all of the other audits out there to try to catch us all off guard so the payers will be able to recoup money for incorrect service billed due to lack of medical necessity.

    I am a case manager and hope that all physician’s will treat their case managers as team mates and not as “the chart police”. We need to work together to help build financially secure hospitals.

  • gzuckier

    Back to the Feinstein “scandal”; note that Feinstein is actually pushing for investigation of PRG-Schultz.

    • Smart Doc

      Any “investigation” by Feinstein of her own crooked Medicare audit company is pure window dressing cover-up that is for media consumption only, and will never go anywhere.

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