OBSERVATION SERVICES:
What can Medicare Beneficiaries and Advocates do?

by Mary WanderPolo, CELA

Being in a hospital bed in a Medicare-participating hospital is no guarantee that a Medicare beneficiary is no longer a guarantee that the Medicare beneficiary is an inpatient in the hospital. Increasingly hospitals are placing Medicare beneficiaries in acute care hospital beds and calling them outpatients One very important consequence of this outpatient status is that the patient will not be eligible for Medicare coverage for a subsequent stay in a skilled nursing facility on the grounds that they have not been a hospital inpatient for three or more consecutive days prior to their admission to the nursing home. Placement in observation services has the effect of shifting significant health care costs that should be covered under Medicare Part A from the Medicare program to Medicare beneficiaries.

CMS (the Centers for Medicare and Medicaid Services) has issued a new brochure describing observation services for beneficiaries. Observations services are defined in Medicare’s manuals as “a well-defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and reassessment, that are furnished while a decision is being made regarding whether a patient will require further treatment as a hospital inpatient or if the patient is able to be discharged from the hospital. The Manuals suggest that a patient should not remain in observation status for more than 24 or 48 hours.

It is important for Medic are beneficiaries and their advocates to know that since 2004 CMS has authorized hospitalization utilization review committees (the committees that review Medicare determinations to change a patient’s status from inpatient to outpatient, retroactively, provided that (1) the change is made while the patient is still hospitalized; (2) the hospital has not submitted a claim to Medicare for the inpatient admission; (3) a physician concurs in the UR committee’s decision; and (4) the physician’s concurrence is documented in the patient’s medical record.

It is important for Medicare recipients and their advocates to be aggressive about determining their status when hospitalized. The following are some suggestions to avoid confusion about observation status:

1. When you have been in the hospital for more than a few hours, ask your doctor or a hospital staff person if you are an inpatient or still an outpatient.
   
   
2. If you are told you are not an inpatient ask to appeal this status BEFORE you leave the hospital;
   
   
3. File an appeal from any hospital notice which describes your status as observation;
   
   
4. Appeal any Advanced Beneficiary Notice/Notice of Exclusion from Medicare benefits that you receive from a skilled nursing facility after coming from the hospital;
   
   
5. Gather complete medical records from the hospital to establish the entire set of services and treatments that were received during the period of hospitalization.

The increasing use of administratively-created observation services is undermining the Medicare Part A hospital benefit, which authorizes inpatient care for both diagnosis and treatment, by essentially redefining diagnosis as observation under Part B.