"Observation Status" at the Hospital: What Does That Mean?

For most people, a hospital stay is bad news. Someone is sick, something is broke, something bad happened.

For some Medicare beneficiaries, the bad news comes after the visit to the hospital. That's when the "visitor" to the hospital realizes that her hospital stay was not a hospital stay. If the visitor has left the hospital and admitted to a Medicare skilled nursing facility, the really bad news is that Medicare is not paying for those skilled nursing facility services.

Mrs. Smith, 73, comes to the emergency room complaining of difficulty in breathing and chest pain. She is seen by the physician on duty, who orders laboratory tests and an injection to ease her difficulty. She is placed in an outpatient observation unit to determine whether she is getting better.

Six hours later, Mrs. Smith is seen again by the physician, who determines that her vital signs are stabilizing and she has resumed normal breathing. Mrs. Smith still has chest pain and therefore her physician orders that she remain in the hospital overnight. Thirty-six hours after presenting to the ER, Mrs. Smith is back to normal and is released.

The purpose of observation, says the U. S. Centers for Medicare & Medicaid Services (CMS), is to determine the need for further treatment or for inpatient admission.

Mrs. Smith was initially treated as an outpatient and was never admitted as an inpatient. Because the outpatient services were ordered by her physician and did not exceed 48 hours, the services were covered as reasonably and necessary. Medicare pays for outpatient services under Part B.

Discharge to a Medicare SNF: Now What?
Instead of being released, after 36 hours, Mrs. Smith's chest pains have subsided, but she is dehydrated and suffering from general weakness. Her physician orders that she be admitted to the hospital as a patient. Mrs. Smith spends another two nights at the hospital and is then discharged to a Medicare skilled nursing facility for follow up physical therapy.

Although she was subsequently admitted to the hospital as a patient, Mrs. Smith did not satisfy Medicare's requirement of a three-day inpatient hospital stay to qualify for skilled nursing facility services covered by Medicare. As a result, Mrs. Smith is facing a greater out-of-pocket cost than if she had been admitted immediately.

"Observation status" is the term to describe the status of an ill patient who presents at the hospital when it is not at all clear that she needs to be hospitalized.

A recent study by Brown University researchers published in June 2012 Health Affairs found that the use of observation status for Medicare beneficiaries has risen sharply from 2007 to 2009. The authors suggest that the rise may be attributed to Medicare payment policies designed to constrain hospital admissions.

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