Jun 19, 2012

Hospital Observational Status versus Inpatient Status

The difference between observation status and inpatient status at the hospital can hit you where it hurts, in the wallet!

By Carole B. Larkin
+Alzheimer's Reading Room

This article is not only for families with a member who has a dementia, but also for all families who have an elderly or disabled family member who is on Medicare.

When one goes to the hospital, there are two admitting statuses, a fact that is not widely known.

A person can be admitted under what we think of as normal “inpatient” status, or they could be admitted under what is known as “code 23” or “observational” status.

When admitted as an inpatient, Medicare uses Part A pays 80% (after the deductible) of all costs, including hospital charges, doctors’ bills, and drug costs.

When admitted on an  “observational status" Medicare uses Part B and does NOT pay 80% for all costs.

It may pay 80% (after the deductible) of bills, but does not pay for things like x-rays, drugs, lab tests, or room and board. Also, the ambulance bill will not be paid, and if the person is ordered to go to rehab, that bill won’t be paid, nor will ordered home health be paid for.

You may be kept up to 24 - 48 hours under observational status by law.

After that you are supposed to either be changed to an inpatient status or discharged.

A person on observational status is considered an outpatient.

Your doctor is the one who is charged with making the decision to admit you or not.

Sometimes your doctor at the moment is the emergency room physician; sometimes it’s another doctor, like your normal doctor. A number of doctors do not make it clear to the hospital that they want you admitted on an inpatient basis (although they are supposed to).

There is a portion of hospitals administration called Utilization Review (UR) who can and do make decisions on the status (observational or inpatient) of a person in their hospital if the “admitting” doctor does not make a declaration of the persons status.

Sometimes these decisions are made (for example: changing an inpatient status to an observational status) long after the person was initially admitted and AFTER THEY ARE DISCHARGED. How’s that for being after the fact?

If you are admitted on an observational status the hospital is supposed to give you an Advance Beneficiary Notice (ABN) that you are considered an outpatient and are not covered by Medicare Part A.

The following is an excerpt from CMS Internet Only Manual (IOM); Publication 100-02, Chapter 6, 220.5:
“If a hospital intends to place or retain a beneficiary in observation for a noncovered service, it must give the beneficiary proper written advance notice of noncoverage under limitation on liability procedures (see Pub. 100-04, Medicare Claims Processing Manual; Chapter 30, "Financial Liability Protections," §20, at http://www.cms.hhs.gov/manuals/downloads/clm104c30.pdf for information regarding Limitation on Liability (LOL) under §1879 Where Medicare Claims Are Disallowed). It is a Medicare expectation that all hospitals have a process that is in compliance with CMS regulations regarding non covered services.”
This situation has caused quite a bit of chatter on the Geriatric Care Manager Listserve with comments such as this:
CMS has hired auditors who get paid incentives based on the money they save Medicare.

Their job is to review and adjust the billing codes. Guess what their incentive is.... observation vs. inpatient.

This has significant and negative implications for the clients, who by the way are usually not informed of how their stay is coded so cannot advocate for themselves. This means the hospitalization, if observation, becomes an out of pocket expense as do many of the medications and procedures. Only some of these can be billed under Medicare B.

Then comes the after care.... SNF (Skilled Nursing Facilities) stays and Home Health coverage...There are clients right now, getting hooked with bills they believed Medicare would cover. They have already been residing in SNF’s post 3 day overnight hospitalization and were never informed that they weren't coded as admissions or that the CMS auditors changed the code to observation after they were discharged. Wait for litigation on the matter...
And this comment:
There is greater incentive for observations due to the 30 day readmission penalties that hospitals will be charged with which total 1% of ALL MEDICARE revenues to the hospital annually for 2013 up to 3% penalty in 2015. Plus additional penalties for other quality and satisfaction markers. It is terrible.

What does this mean for all of you (the public)?

It means that you need to check what your loved ones admitting status is with the admissions people before 24 hours into your loved ones stay in the hospital. If the status is “observational” immediately question not only the admitting doctor but also question the UR (Utilization Review) hospital staff. The question should be:

” Why after 24 hours of observation isn’t my loved one either admitted as a regular inpatient or discharged? And where is my ABN (Advanced Beneficiary Notice)”.

That notice serves as the vehicle for you to submit an appeal of the status later, if needed.

A word to the wise… You need to advocate for your loved one, or your (their) wallets will hurt too!

Carole Larkin MA,CMC,CAEd,QDCS,EICS,
is a Geriatric Care Manager who specializes in helping families with Alzheimer’s and related dementias issues. She also trains caregivers in home care companies, assisted livings, memory care communities, and nursing homes in dementia specific techniques for best care of dementia sufferers. ThirdAge Services LLC, is located in Dallas, TX.
Original content the Alzheimer's Reading Room