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The Difference Between Observation Care and Hospital Admission Can Cost Medicare Patients Thousands of Dollars

Doctor Telling patient about observation care and why she wont be admitted

In July 2015, the Senate approved legislation that requires hospitals to inform patients if they are receiving observation care but not officially admitted to the facility. It is an important distinction because it can prevent patients from receiving shock bills when they return home. Previously, there were plenty of cases of a patient staying in a hospital for several days under the false assumption that he or she had admission status with the protection of Medicare.

If you are only under observation care, you won’t receive Medicare coverage for certain services, such as prescription drugs and nursing home care. This is because Medicare classifies observation care as an outpatient service. The result is higher out-of-pocket payments and fewer benefits. Worst of all, observation patients often have similar ailments to admitted patients.

What Is Observation Care?

Observation care is a classification that describes patients who are not sick enough to receive admitted status but are too sick to go home. It requires a physician’s order and can include short-term treatment and tests to help medical professionals determine whether the individual meets the criteria for admission.

Under the 2015 Act, hospitals must provide Medicare patients with a form that clearly outlines the reasons they have not received admission status. Patients receive the form 24 to 36 hours after they enter the hospital, and it outlines how the decision affects Medicare’s payment for the cost of services received.

Why Does the Classification Matter?

The issue is the difference between inpatient and outpatient status, according to Medicare. You could receive a bill for hundreds of dollars if your visit receives observation care status. Before the 2015 bill, it was normal for patients to spend up to a week in the hospital without realizing they were under observation. It angered patients because if they understood their status, they could fight to get it changed.

Things are even trickier when it comes to nursing home care. If a Medicare beneficiary needs nursing home care to recover his or her strength under observation status, a hefty medical bill awaits. Medicare only covers nursing home care with a prior hospital admission for at least three consecutive days. Time spent under observation does not count. Under the old system, patients would receive bills of several thousand dollars on occasion.

How It Impacts Your Expenses

As it is an outpatient service, patients in observation care have co-pays for doctor’s fees and every hospital service, along with whatever the facility charges for routine medications taken at home for chronic illnesses such as diabetes. Observation patients do not receive Medicare coverage for follow-up care in a nursing home even if the doctor recommends it.

While some hospitals allow you to bring your medications from home to the facility, others cite health and safety concerns as a reason to prevent you from doing so. As a result, you pay for the maintenance drugs received in the hospital. The coverage decision is up to your insurer if you have a Part D plan. Keep in mind that the majority of hospital pharmacies are out of network, so even if your plan covers the medication, you’ll still pay most of the money. In some cases, a hospital will waive the charge if you ask.

How Do I Know I Am an Observation Patient?

First, make sure you ask. It is almost impossible to determine unless you end up in a specific observation wing. If your physician says you are too sick to go home and you need services only a medical facility can provide, you can ask for your status to change to admitted patient. However, a hospital can switch status at any time.

If you’re in a nursing home and discover that Medicare will not cover the cost, you could leave or agree to pay but file an appeal.

Is the Form Clear Enough?

While it is a step in the right direction, not everyone is pleased with the wording of the patient form. The language of the form is supposed to be in “plain English,” but there are concerns that the wording is antiquated. The existing version is better than the original. On that form, the hospital didn’t necessarily need to explain why the patient received observation care instead of admission. It also didn’t clarify the difference between Medicare Parts A and B.

An updated version asks physicians to add the reasons why the patient is under observation care and not admitted; Medicare officials say doctors must provide a specific clinical reason to explain the status. In Atlanta’s Emory University Hospital system, things are clearer because the form contains a list of reasons a doctor can check off.

Final Words

The new system is still at a relatively early stage. It’s a significant improvement over the old method of never letting a patient know his or her status. The hope is that it helps clarify matters for Medicare beneficiaries because the difference between inpatient and outpatient status is significant regarding cost.