Hospitals Caught Between a Rock and a Hard Place Over 'Observation'

Cheryl Clark, September 15, 2010

Like thousands of acute care facilities across the country, Immanuel St. Joseph's, a Mayo system hospital staffed for 161 beds in Mankato, a small town 80 miles southwest of Minneapolis, is caught between a rock and a hard place.

On one side, administrators and physicians are required by Medicare's strict billing criteria to place certain patients in "observation" status rather than admit them as regular inpatients, explains ISJ chief financial officer Jim Tarasovitch.

That means ISJ can submit claims for only one-third of what the facility would be reimbursed if the patients were officially admitted, or the difference between $4,500 per day and $1,500 "even though the care of the patient and the expenditures we do on that patient are exactly the same," he says.

If they admit these borderline patients and bill Medicare accordingly, he confides, the hospital might face recovery audit contractor (RAC) investigations and a possible interpolation of an error rate across a larger swath of its claims. It could mean a lot of headache and worse, a huge loss of federal reimbursement dollars. 

No matter what, hospitals like ISJ can't win.

Though they follow the rules, they hear the wrath from patients and family members. One who is extremely frustrated is Sandi Lubrant, whose 82-year-old mother, a resident of Mankato, has been denied Medicare reimbursement for $19,000 so far for two separate nursing home stays plus the cost of drugs she subsequently needs.

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