The financial impact of observation status has become a flashpoint for hospitals and seniors and is the focus of a hearing before the U.S. Senate Special Committee on Aging.
On Medicare's 49th anniversary Wednesday, a Senate panel heard testimony from caregivers and hospital administrators about the costly consequences of the federal program's unclear definitions of "inpatient" and "outpatient."
A Massachusetts resident described how her 92-year-old husband's nursing home stay wasn't covered by Medicare because, though he'd been in the hospital during the prior 10 days, the hospital didn't consider him an inpatient for the minimum period two midnights.
"The [nursing home] administrator told me that we had to pay the nursing home $7,859 immediately upon leaving [after six-weeks of rehab], or the bill would be put into collection for the full amount of $15,000, or my house would have been attached for the full amount," Sylvia Engler said.
Though she has a lawyer and has filed several appeals, Medicare told Engler she can't appeal because the hospital had determined that her husband's status was 'medical observation.' And since he was not an inpatient, Medicare won't cover his nursing home bill. He remains in a nursing home, Engler said, and she continues to fight.
Engler joined officials from the University of Wisconsin School of Medicine, Yale-New Haven Health System, and St. Mary's Health System in Lewiston, ME to tell a U.S. Senate Special Committee on Aging panel how confusion over the definition of inpatient and outpatient status is harming patients and providers.
"We've heard about this confusion," said Susan Collins, (R-ME). "And I can't imagine that anyone who is ill, who has been put into a hospital bed, making a decision or even realizing there's a distinction between being in an inpatient status or outpatient status…This is absurd."
The House Ways and Means Committee heard testimony about observation status and the two-midnight rule in a May hearing.
The so-called two-midnight rule took effect last October. But because of strenuous objections, Congress has delayed enforcement until March 31, 2015 and audits of hospital billing practices and appropriateness have been temporarily suspended. But hospitals still believe they are expected to comply.
The issue has become a flashpoint for hospitals and seniors in recent years because of fears that recovery audit contractors, in an effort to prevent Medicare fraud, will determine that inpatient stays were not necessary.
Under such a scenario, hospitals would have to give Medicare back payments made under Medicare Part A, which covers the total cost of a stay. And the patient would become ineligible for coverage for skilled nursing facility care and rehabilitation deemed subsequently necessary.
Two-Midnight Rule Will Cost Hospitals Big
Denied payments, hospitals would then be obliged to resubmit a claim under Medicare Part B, which pays only 80%. That means the patient would have to pay 20% of costs, and all of any subsequent skilled nursing or rehab care.
'The Saddest Cases'
A bill that would ensure skilled nursing care for seniors, introduced by Rep. Joe Courtney, (D-CT); Rep Tom Latham, (R-IA); and Sen. Sherrod Brown (D-OH) has not yet passed.
Bob Armstrong, vice president of Elder Care Services for St. Mary's Health System in Lewiston, ME, told the panel a classic story of a patient who, after a five-day hospital stay last year, was discharged to St. Mary's rehab unit.
"The paperwork clearly gave an admitting hospital diagnoses," he said. Fall with a left humerus fracture, which qualified the patient for post-hospital skilled rehab care. The patient returned home.
But when St. Mary's billed Medicare for that rehab care, he said, it "was told that the resident was not admitted to the hospital as an inpatient," but was there five days under observation.
"My facility lost thousands of dollars for providing care for this resident in need with no payment from Medicare….one of countless heart-wrenching stories from across the country."
Collins asked Armstrong if he'd seen beneficiaries "forego care because they've become aware that it's not going to be covered?"
"Yes, Senator," he replied. "Unfortunately."
"These are the saddest cases. Because they didn't get rehab care properly the first time, they go home, break a hip, and start the cycle all over again," back to the hospital. It ends up costing the taxpayer-funded Medicare program a lot more, he said.
Increased Audit Pressure
Ann Sheehy, MD, a member of the Society of Hospital Medicine's Public Policy and chief of hospital medicine at the University of Washington School of Medicine, agreed.
"The simple answer is that there's increased audit pressure from the recovery audit contractors who have increased scrutiny and surveillance of our admission and observation determination," by "several hundred fold in the last several years. Hospitals are very fearful of mislabeling a patient. We don't want to commit Medicare fraud, so we follow the rule of the land."
The impact on physicians, Sheehy added, has been negative. "We feel that our clinical judgment has been overridden by kind of a time-based rule, which will be enforced by auditors."
"Sometimes a Medicare beneficiary will come in with something like a fever, which can be a very self-limited virus, or it can be a life-threatening bloodstream infection. I can't know that up front. But I have to make a decision right away, and that decision will be subject to scrutiny down the road."
When hospitals do bill for patients under Part B, she added, they lose money. "So there's no incentive for a hospital, except to avoid an audit, to put a patient in observation."
Providers Blast CMS on Two-Midnight Rule
In public comments about the two-midnight rule, the American Hospital Association and others last month urged federal officials to come up with a "short-stay payment" policy. The comment period ended June 30th.
Marna Borgstrom, President and CEO of Yale-New Haven Health System, told the panel about a frail 88-year-old patient with breast cancer metastatic to her bones and lungs who had chest pain and difficulty breathing.
"She needed to be hospitalized for some additional tests and treatments that were appropriately predicted to require less than two midnights in the hospital," Borgstrom said.
The patient was placed in observation and sent home the next day with visiting nurse services, and a recommendation from the hospital to increase her services and support.
"The family desperately wanted her in a skilled nursing facility, but could not afford the $250 per day at the facility, nor the $20 per hour home health aide." They had no choice but to take her home with limited services.
"We have little doubt that we will be seeing this patient again in our emergency department, Borgstrom said.
"All of her care providers [will be] secretly hoping that she is 'sick enough' at that time to meet inpatient criteria just so that she can get into a facility and be cared for in a loving and dignified way."