The push-me-pull-you of observation care

Hospital readmissions seem an elephant unable to leave the room: Many states have 30-day readmission rates that are 20 percent or higher, linked to chronic illnesses such as congestive heart failure that can mostly be treated on an outpatient basis.

Based on who you talk to, such cases are costing Medicare alone at least $12 billion annually. Later this year, Medicare will no longer pay for many readmissions within 30 days for a variety of conditions. This obviously has hospitals worried; they're going to have to step their game up on such cases. Seemingly oddball innovations--like bathroom scales featuring real-time telemetry--are among the measures being taken by some providers to prevent readmissions for congestive heart failure patients.

But there's been one innovation that has less to do with preventing readmissions than actual cost-shifting to patients. That's observation care, the practice of holding patients at hospitals but not actually admitting them as inpatients. Anecdotally, such observation cases have increased dramatically in recent years.

Hospitals get paid a significantly smaller amount for observation patients--they're essentially considered outpatients. However, those patients are also on the hook for a lot more of their cost of care.

Here's an example: Medicare Part A has no co-payment for inpatient hospital services. But as an outpatient under Part B, they are usually on the hook for up to 20 percent of both the hospital care and the bills they receive from physicians.

The physicians themselves aren't particularly thrilled with the observation care arrangement, either. According to the trade publication Today's Hospitalist, they are the ones who are put in the position of breaking the news to their patients about the extra costs they are likely to incur. And while many such patients might benefit from care in a skilled nursing facility, as an observation patient Medicare won't pay for many of the costs connected with such a transfer.

Such a dilemma "forces us into really difficult situations where we have to tell patients, 'I would like to get you into rehab for a couple of weeks, but you are going to have to pay out-of-pocket.' And they often don't have the resources," M. Ross Tangum, medical director of the hospitalist service at Legacy Good Samaritan Medical Center in Portland, OR, told the publication.

Medigap plans are available to cover a lot of those costs, but they often cost Medicare enrollees hundreds of dollars a month, which many can't afford. Hospitals and physicians could go after such patients for their share, but that's hardly the type of public relations they want to grow their inpatient days and practice sizes.

For the moment, the observation care and cost-shifting issues are still mostly flying under the public's radar. But expect them to become more of a concern once the new Medicare readmission rules go into effect. Although hospitals will no doubt cut down on their Medicare readmissions, they should likely expect to see their writeoffs and charity care for the outpatient side to quickly rise. - Ron (@FierceHealth)

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