Have you heard of Medicare observation status? This is not a good thing for older plan participants with Medicare Part A as the primary payer. It can spell disaster for individuals in your groups or their families. It is a big problem and not widely understood. Hospitals invoke observation status on thousands of patients. According to Kaiser Health News, 1.8 million Medicare beneficiaries entered hospitals as observation patients, with most not knowing it, in 2012. Educate your groups with Medicare beneficiaries because the rule is most unpleasant.
What is observation care?
Observation care is uncompromising, heavy duty, case management strengthened in the Affordable Care Act for Medicare patients who admit to a hospital for one or more overnight stays. It allows Medicare to peer in on inpatient Medicare beneficiaries and deem the entire stay as observation care. That means inpatient care is now outpatient treatment and all copays and out-of-pocket costs apply to the patient. Hospital executives have little power since when Medicare says it will not pay under Medicare Part A, the hospital tells their docs to get the patient out, and fast. It is all about the money. Whats more is those same diagnoses with similar comorbidities get treated differently. One patient goes through door No. 1 where observation status awaits while the other patient goes through door No. 2 with full Part A benefits. It makes no sense.
Medicare observation care rules also dictate that if a patient, say a stroke patient, goes to rehab for the allotted 100 days under Medicare and then goes inpatient in a hospital, the stay must be at least three nights. If Medicare invokes observation status before then, the patient cannot return to a rehab facility with Medicare reimbursement, even though the patient may have many days left of the 100-day allotment. The patient bears the entire cost of rehab. Sound confusing? Imagine your elderly family member or group member wrestling with this complicated rule.
A class action suit, Bagnall v. Sebelius, sought to overturn these arduous rules, but it went in favor of the government last year. The decision is on appeal.
I went through this horror last month with an uncle for whom I was designated Power of Attorney for health care. He suffered a massive stroke in August that had all kinds of complications. He became very ill and was admitted inpatient by an ER doctor for tremendous pain, pneumonia, sepsis, low blood pressure, fever the list goes on. The doctor admitted my 81-year-young uncle for two days, but into his second day, the authorities ruled his stay observation status retroactive to his ER visit the day before. The entire hospital event became outpatient with all the nasty costs it would spit out. We had no appeal rights. We had three hours to find a new facility that would take him, which, thankfully, we did.
Elderly plan participants need to know this ugly part of the ACA. Younger plan participants need to know this sneaker in the law for their parents. You or a family member may be at the table when this crapshoot of a rule buried in the ACA hits you.
Davidson, CEBS, is principal at Davidson Collective LLC and a management consultant to insurance brokers across the country. He is also on the faculty at the Sheldon B. Lubar School of Business at the University of Wisconsin, Milwaukee. Reach him at
