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Hospital 'Observation' Status Prompts Federal Class Action Suit

Cheryl Clark, for HealthLeaders Media, November 9, 2011

"It's clear this is a problem for thousands of people – maybe hundreds of thousands – and the few that try to fight it often end up contacting us," Deford says.

A spokeswoman for the Centers for Medicare & Medicaid Services said the agency would not respond to a claim that is under litigation.

The controversial Medicare policy was designed to discourage hospitals from admitting patients who don't meet certain illness criteria, while at the same time provide a billing category for hospitals to monitor the status of patients while deciding whether they are sick enough for admission. The period for observation was supposed to be generally no more than 24 to 48 hours, and longer "only in rare and exceptional cases," according to the claim.

Officials for one hospital interviewed by HealthLeaders Media last year, the hospital bills Medicare for about one-third the amount it would ordinarily bill if the patient were officially admitted.

If hospitals do admit patients who don't meet criteria, they are subject to audits by Medicare's Recovery Audit Contractors, and stand to lose substantial revenue.  As a result, in recent years many hospitals have been shifting their admissions practices to err on the side of caution. Sometimes patients are placed in a bed in a special observation unit or in a typical acute care unit. During that time, they may undergo screening tests and procedures to make sure nothing is more seriously wrong, but they are supposed to be discharged within a day.

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3 comments on "'Observation' Status Prompts Federal Class Action Suit"


Janis Jimmie (11/26/2011 at 11:19 PM)
It seems the agency that ensures oversight of care provided to elders continue to complicate the payment system that further complicates the provision of care. What seems to be created is more layers of bureaucracy that ultimately increases cost during the assurance of cost appropriate care!

Janice Noller, RHIA, CCS (11/9/2011 at 2:58 PM)
I agree with Dr. Hirsch - physicians and case managers try to work together to ensure fairness on behalf of the patient and the facility, but the regulations for Observation status are so convoluted and complex, no wonder this happens. The lawsuit may not go anywhere as the article states, but maybe (or not)CMS will open its eyes and simplify the regulations. There is a place for Observation in facilities - just make it easier to use and understand!

Ronald Hirsch, MD (11/9/2011 at 9:32 AM)
It was heartening to see that they chose to file the suit against HHS and not the hospitals. The rules for Observation are ambiguous at best and every day hard working case managers struggle to figure out the "correct" status for patients such as those represented in the lawsuit.