Complex observation-status rules complicate patient care

The convoluted nature of Medicare's rules on observation status and follow-up care has significant financial implications for beneficiaries, according to a study from the American Association of Retired Persons (AARP).

Advocacy groups and healthcare professionals have long warned of tthe negative effects of Medicare observation status on seniors, FierceHealthcare previously reported. Observation patients are at a disadvantage if they are transferred from a hospital to a skilled nursing facility (SNF) for follow-up care, which Medicare will only cover if their inpatient hospital stay lasts at least three consecutive days. Observation-status rules, the study states, impact not only Medicare patients' healthcare costs but also their decisions whether to seek recommended follow-up care. AARP researchers found about 10 percent of observation patients spent more on hospital services than they would have if they were admitted as inpatients. 

Of those admitted to SNFs, nearly 1 in 3 opted out of that care, which AARP speculated was due to cost concerns. Medicare did not reimburse a small portion of claims for patients admitted to SNFs; those patients owed an average of five times more than those who were covered. The AARP found that patients who were not covered for an SNF stay spent an average of $12,000 out-of-pocket.

"These findings have important policy implications, particularly since the use of observation status in the Medicare population has increased substantially over the past decade and a half," the executive summary of the report states. "Limiting the amount owed for hospital outpatient services to the inpatient hospital deductible would protect observation patients from disproportionate out-of-pocket spending."

The bottom line of the report, according to Forbes, is the "system is a mess. Hospitals, doctors, nursing facilities, and patients all hate it. Nobody understands it. And Medicare may not be saving nearly as much money as it hoped."

To address these issues, the study authors recommend that Medicare count observation time toward the three-day threshold, which would protect beneficiaries from high care costs at only slightly higher expense to Medicare.

To learn more:
- here's the study (.pdf)
- read the Forbes article