Observation care takes its toll on patients' wallets

The issue of observation care has proven to be a financial sore point for hospitals, but a new study suggests it is creating similar issues for patients, according to a new study published in the Journal of Hospital Medicine.

Medicare enrollees who were sent to hospitals for observations stays more than once during a 60-day period had a cumulative liability of $947.40. Although that was lower than the typical $1,100 deductible, more than a quarter of those studied had observation care costs that exceeded the deductible.

Moreover, these out-of-pocket costs are higher than what the patient would have to pay if they had been admitted to the hospital as an inpatient. That's because the observation care is covered as an outpatient service and is therefore part of Medicare Part B.

This can be problematic for patients because according to the study, "Medicare beneficiaries who return to the hospital frequently are also typically of lower socioeconomic status, and may be disproportionately affected by any increased financial liability," the study said. "Second, patients have little control over their classification as observation versus inpatients. In many hospitals, observation is simply an administrative classification for care that--from the patients' perspective--is identical to inpatient care."

If a patient is discharged from observation care status to a skilled nursing facility, Medicare will not pick up the tab, leaving the bill to the patient or their family.

However, the distinction also holds financial implications for hospitals, which are chafing over the two-midnight rule intended to distinguish between observation and inpatient care visits. Hospitals are paid very little for observation care cases, and instead have been pushing for a payment code signifying lower acuity as opposed to observation. The American Hospital Association and other providers have sued the federal government over implementation of the two-midnight rule.

According to the study, Medicare enrollees receiving observation care rose from 4.1 percent of the total population in 2010 to 5 percent in 2012, a more than 20 percent increase during that period.

To learn more:
- read the Journal of Hospital Medicine study