Hospital "Observation Status" Would Be Capped Under Medicare Rule Change

The U.S. Centers for Medicare & Medicaid Services (CMS) has issued a proposed rule that would limit hospital practice of "observation status" for Medicare patients.

Currently, a Medicare patient who goes to the hospital complaining of illness or injury might remain at the facility for several days before the hospital might actually admit the individual as an inpatient entitled to coverage under Medicare Part A.

In some instances, a patient might never be admitted but nonetheless be charged for services as an outpatient under Medicare Part B.

Although the distinction between inpatient and outpatient may appear to be academic, real financial consequences can occur to Medicare outpatients who need skilled nursing facility care, which is paid for by Medicare Part A.

Before Medicare will pay for skilled nursing facility services, the Medicare beneficiary must have been an "inpatient" in the hospital under Medicare Part A for three days.

Even after being "in the hospital" for more than three day, some Medicare patients have been discharged to skilled nursing facilities without the requisite three-day inpatient hospital stay, only to discover later that Medicare would not pay for skilled nursing care.

As we reported in our April 29 issue of Elder Law FAX, the U.S. Congress is considering the Improving Access to Medicare Coverage Act of 2013. The bill would alleviate the financial burden on by allowing time spent in the hospital under observation status to count toward the requisite three-day hospital stay for coverage of skilled nursing care.

Last Friday, May 10, a proposed rule was published in the Federal Register that would clarify the review criteria to presume that hospital inpatient status is appropriate for payment under Part A if the patient is admitted to the hospital under a physician's orders and spends at least two midnights under the care of that physician.

In its proposed rulemaking, CMS noted that it had received 350 public comments from hospitals and hospital associations, beneficiary advocacy groups. long-term care facilities, and other stakeholders, most of whom urged CMS to adopt a rule that would clarify "the circumstances under which Medicare will pay for a hospital inpatient admission in order to improve hospitals’ ability to make appropriate admission decisions."

CMS has given June 25, 2013, as the deadline for receiving comments on the proposed rule. Electronic comments on this regulation may be submitted at Follow the instructions for ‘‘Comment or Submission’’ and enter the file code CMS–1599–P to submit comments on this proposed rule.

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