OW! That Hurts!

There have been whispers about it for some time. Now the stories are starting to spread. There has been a televised news report on it, how exactly the “cost sharing” with Medicare is starting to shake out. Here is an example of some of the experiences we are hearing about. Jeanne fell and broke her pelvis. So she was taken to the hospital. She spent several days there when she was cleared to go to a skilled nursing facility where she would receive physical and occupational therapy.

Medicare rules allow for 20 days in a skilled nursing facility as you’ve spent three days as an inpatient in a hospital (not counting the day of release) and are admitted for the same or related condition as was your hospital stay (along with some other criteria). That is where the new wrinkle is coming from. You can be in a hospital, donned a hospital gown, with a hospital bracelet around your arm, and not be an in-patient, only be “under-observation”. Being “under observation” is a designation for people who aren’t ready to go home but don’t need as much attention as a fully admitted patient. I’m writing about this because it is relatively new and can affect your wallet to the tune of thousands of dollars in a couple of different ways. This is in addition to people being turned away from admission.

Medicare pays hospitals far less money for observation than for inpatient stays. As Medicare seeks to cut costs, they are using more auditors to do a hindsight look at admissions. If a hospital admits a patient, and the auditors come in to report the admission wasn’t needed, the hospital commonly loses the revenue for the stay. The result is that Medicare patients may find themselves spending days under observation, often to the dismay if their doctor. Medicare rules say that observation stays should last no more than 24 hours and only “in rare and exceptional cases” go beyond 24 hours. Yet with the risk of revenue loss to the hospitals, there has been more than a 25 % increase in “observation” cases since the policy has started.


You may never notice you haven’t been admitted. Doctors will treat you the same. Where you’ll see the difference, if you are on Medicare, is on your bill. This won’t be noticeable if you have private Medigap insurance. With Medicare Part A you have a fixed Part A deductible, which covers all hospital casts for 60 days. Observation falls under Medicare Part B, which is an 80% Medicare coverage with a 20% co-pay. Without proper insurance, you will owe the Part B deductible and the 20% co-insurance if you are categorized as “under observation” rather than admitted.


What you might owe the hospital pales in comparison to what you owe in a skilled nursing facility, or rehab, should you not qualify for Medicare coverage. If you qualify for Medicare coverage, the first 20 days of care is fully covered by Medicare. Then the 21st to the 100th day is $152 per day is covered. If there is no Medicare coverage, then the full cost of the care must be paid by you. This is what happened to my stepfather, who had to go to the skilled facility due to a serious bed sore, after the hospital refused to admit when he returned three weeks after being released (a different punitive fee to the hospital). Supplemental policies are required by law to only pay if Medicare approves the charge and pays, so there is no help there.


What if you are switched to an in-patient stay after being under observation? The days under observation don’t count towards the three day rule which qualifies you for Medicare payment in the skilled facility. In the case of my step father, the two month rehab stay was around $15,000. Be aware. Medicare does not require hospitals to tell you your admission status, except when you’re transferred from an in-patient to observation. Some patients, faced with unaffordable skilled facility stays, will sometimes forgo needed care.


To help understand, we need to be aware that Medicare has been trying for decades to cut down on fraud and over-payments by stepping up claims auditing. It’s been my observation that the only successful way has been to reduce benefits, which reduces the time a health care provider can commit fraud. I’ve seen physical therapy be reduced, as well as in-home Medicare-approved visits.

The auditing firms retained to audit hospital bills do have a bit of an incentive. They are paid 9-12% commissions on what they recover. Medicare has collected over $2.5 billion through these audits, but we have to ask at what price to the quality of care? Worse, if an auditor rules that an in-patient stay should have been an observation, the hospital may well lose the entire Medicare payment. The auditors have the advantage of hindsight.


The only way to have your skilled stay covered by Medicare is to have your status changed to in-patient while you are in the hospital. Ask your case management worker or doctor to review your status. You can ask that your case be taken to the utilization review committee. It helps if you have your medical history. A more complete picture could help you meet the in-patient guidelines.

If all else fails, arrange for home care. Medicare does provide for a limited number of home care visits. You can arrange this with your discharge manager, even if you aren’t an in-patient.