Patients who rely on Medicare sometimes experience sticker shock after being released from the hospital only to find out that because some hospital administrator classified their stay as “observational” that they must pay a large portion of the final bill. Many times a doctor will seek to have a patient admitted for any number of reasons, only to have a bureaucrat reclassify the patient’s time at the hospital as observational. Such a designation will mean that Medicare will not pay for this time in the hospital. For Medicare to pay for a hospital stay, the patient has to be an admitted patient for at least three days (three midnights in the hospital).

Observational status does not equate to an admitted patient in Medicare’s own set of self defined definitions. That may be quite different to the patient who went to the hospital and received a number of drugs and tests during their time their and was consistent with the majority of their non-surgical stays in a hospital in life. In an effort to address these obvious problems that will only grow with time, President Obama signed a bill that required hospitals to warn patients that their stay will be considered observational in nature and that they are not being admitted under Medicare’s rules, which may result in a bill from the hospital that they will have to pay. The Notice of Observation Treatment and Implications for Care Eligibility Act would have to inform the patient that they are going to receive outpatient services under Medicare’s rules which requires cost sharing from the patient and that the observational status does not count towards the necessary three day inpatient in order to transition to a skilled nursing care facility.

Various advocacy groups see enough blame to go around and have attacked the problem both at the level of hospital decision makers as well as the Federal Department of Health and Human Services, which administers Medicare. Part and parcel of the same strategy to deal with these issues was a class action lawsuit filed in the District of Connecticut that sought to force the issue of requiring the federal government, or, more properly, Medicare, to pay for such observational stays. The matter was dismissed although it was appealed to the Second Federal Circuit Court of Appeals, which affirmed in part and reversed in part. The effort to make Medicare to change its position has not changed. After all, it would be the height of bad medical decision making to refuse to go into the hospital if your treating physician recommends you to stay.

It is unclear how the law will help patients if a doctor seeks to admit the patient under one criteria only to have a bureaucrat change this designation afterwards. The only thing that the law does is to give patients information that they are going to be subject to price sharing with Medicare. There is no clear way for the patient to appeal this decision at the moment that the decision is made.   

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