In response: Strict Medicare rules dictate inpatient vs. observation status

It may be surprising to learn, but a patient can actually be placed in a hospital bed and not be considered an inpatient. A patient can stay up to several days in a hospital room and receive treatment, medicine and procedures and yet technically ...

It may be surprising to learn, but a patient can actually be placed in a hospital bed and not be considered an inpatient. A patient can stay up to several days in a hospital room and receive treatment, medicine and procedures and yet technically be an outpatient on observation status. And this is important for people to understand, based on the inaccuracies of a March 20 commentary, headlined, “Get admitted or pay a higher price at hospital.”
When a Medicare patient arrives at the hospital, a strict set of federal rules combined with the medical opinion of the attending physician determine the patient’s status based on the level of care needed. Hospitals do not make the choice to admit as an inpatient or hold for observation; nor, as the commentary suggested, can a patient lobby to be admitted as an inpatient. The decision is made by the physician, under the strict guidelines of the Centers for Medicare and Medicaid Services, or CMS.
Those guidelines, which were strengthened in October 2013, state that to be an inpatient all of the following requirements must be met:

  • The patient must require an inpatient level of care (supported by physician documentation of the severity of signs and symptoms, past medical history and/or extenuating circumstances).
  • There must be a valid inpatient order.
  • The patient’s hospital care must be reasonably expected to span at least two midnights.
  • And the attending physician must complete and co-sign a certification with all required elements prior to hospital discharge.

If any of the above requirements are not met, the patient must remain an outpatient, on observation status. Hospitals provide informational material to those placed on observation status. However, no observation status patient is ever asked to sign documents regarding their status. All patients who come to a hospital for treatment are required to sign a general
consent-for-care form so they can be treated. Hospitals also offer case managers to assist anyone who has questions about their status, their bill or any other issue they may have during or after their stay.
The writer of the commentary, an insurance agent, focused on the financial implications of inpatient status versus observation status. The writer’s premise was that hospitals around the country opt to place patients in observation status rather than inpatient status to make more money. This premise simply is not true. Hospitals actually get reimbursed more from Medicare for inpatients than for outpatients on observation status.
Also implied was that if people don’t become inpatients, their outcomes are not tracked. That, too, is not true. Outcomes are tracked by a variety of rigorous quality indicators and monitoring systems regardless of whether people are inpatient, outpatient or on observation status.
The writer brought up some valid points regarding patients’ financial responsibility when placed on observation status. For example, Medicare patients do pay higher out-of-pocket costs while in observation status. However, it’s important to note that even with these increased out-of-pocket expenses, hospitals still get paid more for patients who are admitted as inpatients. Medications from a hospital pharmacy typically do cost more than a patient’s own prescriptions. And Medicare will not cover the cost of rehab care in a nursing home following hospital discharge if the patient has not been classified as an inpatient for at least three midnights.
Hospitals classified as acute care facilities - like Essentia Health-St. Mary’s Medical Center and St. Luke’s Hospital - are regularly audited to ensure they are following Medicare’s guidelines. They face significant financial penalties if there are incorrect patient statuses.
The system is not perfect, but we are obliged to follow the guidelines set by Medicare. We’ve decided to submit a joint statement because the Medicare rules on inpatient versus observation status impact both large health care systems that deliver care in Northeastern Minnesota and Northwestern Wisconsin. Our top priority is the quality of care and treatment of each and every person who enters our facilities, and we strive to maintain the highest ethical standards of care in every decision we make, for every patient, every day.

Dr. Daniel A. Nikcevich is president and chief medical officer of Essentia Health’s East Region. John Strange is president and chief executive officer of St. Luke’s.

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