Bipartisan Legislation Introduced to Fix Medicare’s Observation Status Requirement
The common practice of placing a beneficiary on “observation status” can
have significant financial consequences for Medicare beneficiaries...
Bipartisan legislation was introduced in both houses of Congress this week to address Medicare’s “two midnight” policy. Representatives Joe Courtney (D-CT) and Glenn Thompson (R-PA) introduced H.R. 1682 and Senators Sherrod Brown (D-OH) and Susan Collins (R-ME) introduced S. 753. These bills would allow observation stays to be counted toward the three-day mandatory inpatient stay for Medicare coverage of a skilled nursing facility (SNF). NAHU is particularly thankful to our members who asked their lawmakers to support these bills as part of our sign-on letter campaign at Capitol Conference that helped to bring 14 House co-sponsors and 18 Senate co-sponsors onto the bills at their introduction.
Currently, Medicare beneficiaries who are not officially admitted to a hospital may be classified under “Observation Status,” which is treated as an outpatient procedure for billing purposes. Unfortunately, the common practice of placing a beneficiary on “observation status” can have significant financial consequences for Medicare beneficiaries, since Medicare Part A and its related coverage rules only apply to actual inpatient care admissions. This may lead patients, many who are extremely sick and may need skilled nursing care to spend many days in the hospital and be charged for services that Medicare would have otherwise paid had they been admitted. Furthermore, hospitals have up to one year to retroactively change admission status to observation, leading unsuspecting beneficiaries with thousands of dollars in bills for SNF care they believed would be covered by Medicare.
The issue stems from policies designed to prevent unnecessary hospital readmissions, where Medicare would penalize hospitals when patients would be re-hospitalized within a month of being discharged. Hospitals with readmission rates above the national average would receive lower Medicare reimbursements, thereby in theory incenting hospitals to adequately treat patients the first time and avoid re-admissions. However, in response to the policy, some hospitals increasingly placed patients under “observation status,” allowing them to provide care for patients whose conditions were not poor enough to be admitted without the hospital being penalized for a re-admission. Regardless if care was performed in the inpatient unit, these visits would be classified as outpatient procedures and billed under Medicare Part B, which could result in higher cost-sharing for the patient.
As frequency of beneficiaries receiving extended observation services increased, as well as high error rates for hospital services that were performed as inpatient instead of outpatient, in 2013 CMS issued guidance designed to determine which hospital stays should be billed for Medicare Part A and which should qualify as outpatient. Beginning in October of 2013, if a physician expected a patient to stay fewer than two midnights, then the services would be classified as outpatient and billed under Medicare Part B. CMS later delayed the enforcement of this policy through March 31, 2015.
The bills introduced this week would allow observation stays to be counted toward the three-day mandatory inpatient stay for Medicare coverage of a SNF, helping to close the loophole and provide an important consumer protection for Medicare beneficiaries who may be placed under observation status. This would allow for patients who are placed under observation status to count their stay towards the three-day mandatory inpatient stay under the two-midnight policy for Medicare coverage of skilled nursing facility services, and prevent patients from being denied Medicare benefits. Beneficiaries could also avoid receiving unexpected bills for services, such as prescription medications, that otherwise would have been covered under a hospital admission.
NAHU will be sending an Operation Shout next week to members who are active in the Medicare market. We encourage you to take action and urge your representative and senators to support these bills.