Outpatient Observation Status

Explanation: It is a hospital billing classification that can make Medicare patients pay for the cost of their hospital stay, or hospital prescriptions, or nursing home care. Patients must be classified as patients for three days in the hospital in order for Medicare to pay for subsequent nursing home care. Observation status may be called “outpatient,” but it has nothing to do with where a patient receives care or the kind of care received. It is a billing code. Hospitals use it to protect from overzealous auditors and Medicare readmission penalties. It may just seem like semantics, but for Medicare beneficiaries, it can ruin lives. It saddles patients with increased out-of-pocket expenses. Patients who don’t have Medicare Part B are responsible for the full cost of the hospitalization.

Observation status can be devastating; it can result in thousands of dollars in hospitals bills, and thousands more in nursing home bills after a hospital stay. The use of “outpatient” observation status isn’t just wrong; it can be dangerous. Many patients can’t afford their care if Medicare won’t pay. If post-hospital care in a nursing home won’t be covered by Medicare, many people go without that care altogether, rather than face the enormous bills. The problem is growing. The number of patients cared for under observation status doubled from 2006 to 2014. What to do? ASK – take action at the beginning of a hospital stay to try to stop observation before it starts. Ask the hospital doctor to admit the individual as an inpatient based on needed care, tests and treatments. Ask the patient’s regular physician to contact the hospital doctor to support this request. ACT – File an appeal with Medicare, if the patient’s nursing home coverage is denied. File a complaint with the patient’s state health department, if he or she did not get notice about outpatient observation status. The Center for Medicare Advocacy, Inc.

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