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Observation Status Rules Rankle Hospitals, Patients

Cheryl Clark, for HealthLeaders Media, December 13, 2010
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Like thousands of acute care facilities across the country, Immanuel St. Joseph's Regional Medical Center, a part of the Mayo Health System in Minnesota, is dealing with competing concerns related to "observation" status.

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 CFO Jim Tarasovitch.

In essence, they are not sick enough to be admitted, but they're too sick to be sent home.
That means ISJ must submit claims to Medicare for only one-third of what the facility would be reimbursed if the patients were officially admitted, or, for example, the difference between $4,500 per day and $1,500 "even though the care of the patient and the expenditures are exactly the same," he says.

If it does officially "admit" these borderline patients and bill Medicare at inpatient rather than outpatient rates, he says, the hospital might face recovery audit contractor investigations and a possible interpolation of an error rate across a larger swath of its claims. It could mean a lot of headaches and a huge loss of federal reimbursement dollars.

But as they follow the rules, absorbing this cost of care, hospitals still feel the wrath of patients and family members.

One who is very frustrated is Sandi Lubrant, whose 82-year-old mother has been denied Medicare reimbursement for more than $20,000 so far for two separate nursing home stays since April.
Last spring, Lubrant's mother was taken to ISJ's 161-bed acute care facility in Mankato for a five-night stay. Later, however, Lubrant was informed that her mother never was admitted.

Instead, her care status was classified as "observation," even though the family has hospital documentation indicating she was admitted from the emergency department as an inpatient. But she did not satisfy the Three Day Rule for admissions, a Medicare requirement if federal funds are to be used to pay for subsequent nursing home care.

The same thing happened in September. "This has been so incredibly stressful for my dad and our family," Lubrant says. "We're lost. What rights and options do we have? Mankato is a small town with only one hospital."

Now, it appears, many hospitals are dramatically bumping up their use of observation status, Medicare statistics show. CMS data shows that in the four calendar years from 2006 to 2009, observation status claims climbed from 828,353 to 1,131,000. Especially noteworthy is the increase in claims for observation stays for patients kept for more than 48 hours, which more than tripled from 26,176 to 83,183.

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