Hospitals defend observation-status policies as criticism grows

The president of the Pennsylvania Medical Society (PMS) blamed Medicare's recovery auditor (RAC) program and government mandates for Medicare coverage for hospitals' growing reliance on holding patients for observation, sometimes for several days, rather than admitting them.

PMS President Richard Schott, M.D., told the York (Pa.) Daily Record hospitals are fearful of audits and potential penalties for admitting patients Medicare determines should have been treated as outpatients. The audits can come years after the patient's admittance to the hospital, Schott said.

Patients on observation status are considered to be outpatients, even if they stay in a hospital bed for two or three nights for treatment and tests. Critics charge hospitals sometimes use observation status to avoid Medicare readmission penalties, as well as potential RAC audits and fines.

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.

Meanwhile, a 2011 federal lawsuit filed against the U.S. Department of Health & Human Services on behalf of seven Medicare patients claimed inappropriate use of observation status illegally denies patients Medicare coverage and burdens them with large hospital bills. That's because outpatient treatment falls under Medicare Part B, a voluntary coverage that leaves patients responsible for 25 percent of the bill.

Additionally, rehabilitation and nursing home care is not covered under Medicare unless it follows a 72-hour hospital admittance, the Daily Record reported.

Ann Kunkel, director of case management for York Hospital parent company WellSpan Health, told the newspaper that hospitals don't benefit financially from putting patients on observation status. She said Medicare pays up to 10 times more for an inpatient than an observation patient, even when they receive similar care. Between 15 percent and 20 percent of the hospital's patients are typically on observation status, she said.

Meanwhile, Lynn Nichols, president and CEO of the Massachusetts Hospital Association, said hospitals are using clinically based criteria to determine whether to admit a patient or place them on observation status. But she noted insurers, including Medicare and Medicaid, can make decisions based on "internal administrative criteria rather than on clinical information."

Nichols urged support of a proposed waiver from Medicare allowing patients to obtain post-acute care even if they were on observation status, she wrote in a letter to the editor of the Patriot-Ledger.

The number of hospitals with observation units has doubled since 2003, according to reports published earlier this year. They noted such units can improve emergency department flow and save hospitals money by caring for patients who need more than ED care but not a full admission, such as certain heart-attack patients.

To learn more:
- read the York Daily Record article
- here's the Patriot-Ledger letter to the editor

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