Patients sue HHS to kill observation label

A legal battle started by Medicare patients left holding the bag on nursing home costs could indirectly impact the bottom line for hospitals, reported Kaiser Health News.

The lawsuit involves the observation care label used by hospitals to avoid admitting inpatients--the plaintiffs want it removed entirely.

If patients are under observation care within a hospital before getting transferred to a nursing home, Medicare will not cover the cost of the skilled nursing facility. The result is usually tens of thousands of dollars in bills for the patients and their families. A three-day stay as an inpatient is required before Medicare will cover a nursing home stay, according to Kaiser.

However, hospitals often rely heavily on observation care status for Medicare patients with relatively minor injuries and ailments because a short stay as an inpatient can be a red flag for RAC auditors, the York Daily Record reported. Up to a quarter of the local hospital's Medicare patients are under observation status.

In fact, observation stays increased 25 percent from 2007 to 2009 as inpatient admissions declined, a Brown University study published last year in the journal Health Affairs found.

Moreover, hospitals do not have a legal obligation to tell patients or their families whether they have been admitted as inpatients, according to Kaiser.

But proposed rule changes by the Centers for Medicare & Medicaid Services that would require hospitals to admit patients held under observation longer than two days is opposed by the American Hospital Association, the article noted.

- read the Kaiser Health News article
- read the Daily Record article

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