From North Central Oklahoma Ostomy Outlook February 2014:

Medicare Patients: Watch Out for “Under Observation” status

Compiled from Internet sources

If you’re under Medicare and get hospitalized, be aware whether you’ve been classified as an “inpatient” or are just “under observation.” The distinction may seem subtle, as you may receive the same care both ways. However, the difference may cost you thousands of dollars.

The difference in cost may occur two ways: First, if you’re only under observation, you may need to pay somewhat more for the hospital care itself. When you’re an inpatient, the costs are covered by Medicare A, which usually pays the full cost after a deductible is met. If you’re only under observation, the costs are covered by Medicare B, which pays only 80% of the cost.

The really big consequences occur if you require care in a skilled nursing facility after your hospital stay. Medicare pays for the nursing costs only if you were in the hospital as an inpatient for at least 3 days. If you were only under observation, Medicare pays nothing for the nursing care, so you must pay that whole cost yourself.

Hospitals have been using “under observation” status increasingly in recent years, due to pressure from Medicare to reduce costs to Medicare by reducing improper inpatient admissions. The pressure has been applied mainly by “Recovery Audit Contractors” (RACs), who are hired by Medicare and can review cases up to three years afterward. If an RAC concludes that a patient was admitted improperly, the hospital must return the amounts paid to them by Medicare. By using “under observation” status instead of actually admitting patients, the hospital ensures that they won’t need to return money to Medicare.

What can you do as a patient? First, make sure you know whether you’re an inpatient or just under observation (the hospital may not always tell you). If you’re only under observation, but think you should be an inpatient, one option is to ask your regular doctor to speak with the doctor in charge of your hospital care, and try to get your status changed. If that doesn’t work, you can appeal Medicare denial of payment decisions. This can be a long and difficult process, but has a reasonable chance of success if you go through with it.

The following links contain more information on this topic. The first is a story aired by NBC News on Jan 9, 2014. The second is from an organization devoted to Medicare Advocacy.


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