The importance of understanding the difference between observation care and inpatient care.

Medicare for years was switching patients from inpatient to observation care to avoid paying for nursing home services. This tactic was used to shift costs from Medicare to Elderly Individuals. Medicare covers the first 20 days of nursing home stay if the patient was first admitted to a hospital as an inpatient for at least three days, not including the day the patient was transferred. In addition, Medicare Part A covers inpatient services, but observation care is billed under Medicare Part B. Medicare Part B means an Elderly person has to pay for the co-payment which is more than the one-time deductible under Part A. 

An Elderly individual's status as a patient in the hospital is based on the level of care he/she may need. Of course, there are no real clear cut definitions for inpatient and observation care.

Admission for inpatient hospital care is a medical decision based on a doctor’s judgment and the medical necessity of hospital care. Usually, Inpatient admission is appropriate when a person needs 2 or more days of hospital care. To qualify a doctor must order such admission and the hospital must formally admit the person.

Observation status is when it is unclear that you need extended care. An easy way to think about it is a person is being observed to make sure they are taken care of.

Federal law requires that a hospital notify a patient that they are under observation status than inpatient. On January 25th, 2022, a federal appeals court decision allows patients the right to appeal Medicare finding that of observation care. 

The article below was written by Susan Jaffe about a federal appellate court ruling. 

 Article by Susan Jaffe

A three-judge federal appeals court panel in Connecticut has likely ended an 11-year fight against a frustrating and confusing rule that left hundreds of thousands of Medicare beneficiaries without coverage for nursing home care, and no way to challenge a denial.

The Jan. 25 ruling, which came in response to a 2011 class-action lawsuit eventually joined by 14 beneficiaries against the Department of Health and Human Services, will guarantee patients the right to appeal to Medicare for nursing home coverage if they were admitted to a hospital as an inpatient but were switched to observation care, an outpatient service.

The court’s decision applies only to people with traditional Medicare whose status was changed from inpatient to observation. A hospital services review team can make this change during or after a patient’s stay.

Observation care is a classification designed for patients who are not well enough to go home but still need the kind of care they can get only in a hospital. But it can have serious repercussions.

Without a three-day inpatient stay, beneficiaries are ineligible for Medicare’s nursing home benefit. So if they need follow-up care in a nursing home after leaving the hospital, they can face charges of about $290 a day, the average national cost of nursing home care, according to a 2021 survey. Also, since observation care is categorized as outpatient treatment — even if the patient is on a hospital ward — they can get stuck with significant copays under Medicare rules.

“You can appeal almost every issue affecting your Medicare coverage except this one, and that is unfair,” said Alice Bers, litigation director at the Center for Medicare Advocacy, which represented the patients in their lawsuit along with Justice in Aging, another advocacy group, and the California law firm of Wilson Sonsini Goodrich and Rosati.

Until Congress passed a law that took effect in 2017, hospitals weren’t required to tell patients whether they were receiving observation care and had not been admitted. Under that law, hospitals must provide written notice, but it does not trigger any right to appeal.

The Department of Justice, representing HHS and the Medicare program, tried numerous times to get the case dismissed, arguing that the decision to admit patients or classify them as “observation patients” was based on a doctor’s or hospital’s medical expertise. Patients had nothing to appeal because the government can’t change a decision it didn’t make, so no Medicare rule had been violated.

Doctors rejected that notion and have long complained that the Medicare rule undermined their clinical judgment and produced “absurd results” that can hurt patients. The American Medical Association and state medical societies filed legal papers in support of the patients challenging the rule, as did several other organizations, including AARP, the National Disability Rights Network, and the American Health Care Association, which represents nursing homes across the country.

But U.S. District Judge Michael Shea ruled against HHS in 2020, and estimated that hundreds of thousands of Medicare patients would be able to seek refunds for nursing home care and other costs that admitted patients don’t pay. The trial took place in 2019.

The government continued to back the rule, however, and asked a federal appeals court panel to reverse Shea’s decision — despite comments from then-chief of Medicare Seema Verma, who questioned these policies in a 2019 tweet, saying that “government doesn’t always make sense.”

On Jan. 25, the appeals court judges upheld Shea’s decision, agreeing that when hospitals switched a patient’s status they were following Medicare’s 2013 “two-midnight rule.” It requires hospitals to admit patients who are expected to stay through two midnights. The ruling applies to people in traditional Medicare.

“The decision to reclassify a hospital patient from an inpatient to one receiving observation services may have significant and detrimental impacts on plaintiffs’ financial, psychological, and physical well-being,” the judges wrote. “That there is currently no recourse available to challenge that decision also weighs heavily in favor of a finding that plaintiffs have not been afforded the process required by the Constitution.”

A DOJ spokesperson declined to comment on whether government lawyers would appeal the new ruling.

Three groups of Medicare patients who were switched from inpatient to observation status after Jan.1, 2009, will be able to file appeals for nursing home coverage and reimbursement for out-of-pocket costs. People currently in the hospital will be able to request an expedited appeal, and others who have recently incurred costs can file a standard appeal by following instructions in their Medicare Summary Notice. A plan for appealing older claims has not yet been arranged, said Bers. The latest details are available on the Center for Medicare Advocacy’s website. (The three-day inpatient hospital stay requirement is temporarily suspended due to the covid-19 pandemic.)

Observation status also causes trouble for people like Andrew Roney, 70, of Teaneck, New Jersey, who was caught unawares when he was switched from inpatient to observation status. He had Medicare’s Part A hospitalization coverage, which is free for most people 65 and older. But he didn’t sign up for Part B, which carries a monthly premium and covers outpatient services, including observation care, doctor visits, lab tests, and X-rays. He spent three days in a nearby hospital for an intestinal infection in 2016.

Roney, a freelance editor and substitute teacher, didn’t think he needed Part B and assumed Part A would cover his hospital stay. Instead, he was surprised to get a $5,000 bill because he was classified as an observation patient and was not admitted. Despite his best efforts, there was nothing he could do about it except to pay up.

“It came as a shock to the system,” said Roney, who testified in the 2019 trial. “I don’t want anybody else to go through that.” Although he had given up hope of getting his money back, he intends to file an appeal now that he can. “It’s a nice chunk of change.”

Read the original article here