A Hospital Trap to Avoid

More and more people are being lured into this trap every day and the hospitals are doing this to raise revenue. Just be careful when being admitted to a hospital. You won't know until you get the bill that you were admitted on an observation status instead of an inpatient status. What is the difference you ask?

Inpatient means that your insurance will be billed and you may have a copay. Observation status means that your insurance won't be billed and the full bill will be yours to pay since you were considered an “outpatient.” The hospitals can change your status at any time without notifying you of the change and this makes it more difficult for you to dispute the charges.

A study released by Brown University in mid-2012 showed that across the United States, hospital admissions had decreased slightly even though the population of Medicare patients had risen. It also showed that patients kept under observational status had increased 25%. Further, those who were kept under observation status, on average, were staying longer than ever before - up to 72 hours without being admitted. These statistics led experts to try to explain why so few patients were being admitted.

Hospitals make money on patients they assign to observational status and they know what they are doing. If a patient is assigned observational status, then he/she is considered an "outpatient," meaning that he/she is not admitted to the hospital. It can be very lucrative for the hospital to assign that patient outpatient status without formally admitting him/her. Here's how:

1. Some insurance companies, including Medicare, don't consider observation status as an admission, and therefore won't cover the cost as they would if the patient was hospitalized. That means the patient can be charged cash for their visit. The cash payment for an outpatient visit is far higher than reimbursement from insurance for an admitted patient's stay because, of course, insurance companies negotiate far lower rates for the patients they pay for.
2. Medicare does not totally reimburse hospitals for patients who are readmitted within 30 days of leaving the hospital previously. That means that if a Medicare patient was hospitalized, then sent home, and reappears in the emergency room within 30 days, the hospital will be penalized for the readmission. By putting a patient on observational status, they avoid the penalty, and they can charge the patient cash, too.

Once the hospital makes the status observational there are problems for most patients.

1. The out-of-pocket costs are higher. Particularly for Medicare patients - if they aren't admitted to the hospital, even if they stay there, the hospital can charge them for many things Medicare doesn't cover if Part B coverage is used. The latest ruling (2014) from CMS says that Medicare patients must be formally admitted, and stay in the hospital overnight for two midnights.
   
   
2. Medical care can be compromised. Hospital stays are so short these days because insurance reimbursements are so low once a patient gets past a certain point in his/her care. That means there are some patients who are being sent home too early. If they begin to get sick again, or find themselves in unmanageable pain, they will try to return to the hospital. But if the hospital is reluctant to admit them, those patients may not get the care they need. The "observation status" designation can compromise the care they get because they have not been fully admitted to the hospital and are therefore not fully part of the hospital process of caring for patients.
   
   
3. Medicare patients who must be admitted to a nursing home are required to be fully hospitalized prior to nursing home admission if they expect Medicare to pay for their nursing home stay. If a patient had been put on observation status instead of fully admitted, then there will be no nursing home reimbursement - that can amount to hundreds of thousands or more. If Medicare is to cover any nursing home costs, the patient must be formally admitted to the hospital for at least three midnights (not the same rule as the two-midnight rule mentioned above.)

This addresses only Medicare patients, however, if your healthcare is covered by a private payer, or another government payer (Tricare, Medicaid) then you would be wise to check with them to find out if your observation status is covered. As time goes on, this policy of not paying for observation status may become a trick used by all payers - and hospitals - to offset lower reimbursements.

Hospitals are becoming more creative in the way they treat patients and with the bonuses they are paying the executive officers, they will continue to harm the patients. If not medical harm, the hospitals will cause financial harm.