Advocates Say ‘Observation Stays’ Hinder Medicare Beneficiaries

Patient advocates are criticizing the growing practice of classifying patients treated in a hospital as being outpatients on "observation stays," which can leave Medicare beneficiaries with unforeseen medical expenses, California Watch reports.

Background

Hospitals across the U.S. are labeling patients who receive care in the facilities as outpatients under observation. However, Medicare does not cover post-hospitalization care for patients who receive the classification.

According to California Watch, nearly 55,000 Medicare beneficiaries in California were labeled as being under observation status in 2009, which is among the lowest rates in the U.S.

Study on Use of Observation Stays for Medicare Beneficiaries

A study published Monday in Health Affairs found that hospitals are using the observation status for Medicare beneficiaries with greater frequency. Researchers from Brown University found a 34% increase in the ratio of observation stays to inpatient hospitalizations among Medicare beneficiaries between 2007 and 2009.

Although Medicare policy guidelines suggest that observation stays last 24 to 48 hours, the number of observation stays lasting three or more days has increased, according to the study. Researchers found that 44,843 Medicare patients were held for observation stays for 72 hours or longer in 2009, an 88% increase from 2007.

Reasons for Increase in Observation Stays

According to the researchers, changes to Medicare policy over the past 10 years likely are contributing to the rise in observation stays.

In recent years, the federal government has focused on detecting Medicare fraud and conducting audits of hospital practices, such as short hospitalizations.

According to California Watch, hospitals can avoid some of the scrutiny if a patient's stay is not counted as an inpatient hospitalization and instead is classified as an observation stay.

The California Hospital Association's website states that hospitals "face criticism from patients and CMS over the perceived use of observation status as a substitute for inpatient admissions, but risk penalties from CMS auditors and prosecutors when auditing admissions of short inpatient stays."

CHA declined to comment for the story.

Efforts To Aid Medicare Beneficiaries

The Center for Medicare Advocacy and the National Senior Citizens Law Center have filed a lawsuit against HHS Secretary Kathleen Sebelius claiming that Medicare beneficiaries have been negatively affected by use of observation status because it causes the denial of one type of Medicare coverage and prompts out-of-pocket costs for prescription drugs and post-hospitalization care in skilled nursing facilities.

The lawsuit also alleges that patients do not receive proper notice when they are on observation stays or have a clear right to appeal that status. It also claims that patients are not properly informed when their status changes from inpatient to outpatient.

In addition, a federal bill (HR 1543) introduced last year would consider observation status as an inpatient stay for Medicare beneficiaries seeking care in a skilled nursing facility after being treated at a hospital.

Patient Advocates Predict Continued Increase in Reliance on Observation Stays

Patient advocates believe that the federal health reform law -- which penalizes hospitals for "excessive readmissions ratios" -- will prompt hospitals to continue relying on observation stays.

Toby Edelman, a senior policy attorney for CMS, said, "We are going to see even more of this as hospitals worry about readmitting people," adding, "They will be calling these patients 'observation stays' left and right" (Yeung, California Watch, 6/4).