Hospital billing trick saddles the ill with unexpected costs

May 08--Beginning in August all hospitals, including those in the Toledo area, will be required to notify Medicare patients if they are considered on outpatient observation status after being hospitalized more than 24 hours.

Observation status is a confusing concept. It allows Medicare patients to be admitted, treated the same as any other patient by the hospital staff, but be classified as an outpatient -- even after two days or more of care.

It began as a way to keep people in the emergency department a little longer to decide if their condition was severe enough for hospital admission.

Observation status has now morphed into an accounting trick to help the government save health-care dollars, said Dr. Ann Sheehy, division head of the Department of Medicine, University of Wisconsin Hospital.

"It's purely a billing designation. Patients can get the same medical care under both [observation and inpatient]," she said.

Dr. Sheehy is also the lead author of the report "The Observation Status Problem."

"How can you be put in a hospital and not be considered an inpatient? It's not even logical," she said.

There has been a nearly 20 percent decrease in inpatient discharges from hospitals and a more than 44 percent increase in outpatient visits for Medicare beneficiaries between 2006 and 2014, according to a 2016 report by the Medicare Payment Advisory Commission.

"Part of the decline in discharges and growth in outpatient service is due to increased use of observation services as a substitute for inpatient care," the report stated.

Medicare and private insurance companies, which offer Medicare managed health plans, save money when a patient is under observation status because out-of-pocket costs for the beneficiary increase. Hospitals are also reimbursed at a lower rate from Medicare if patients are on observation status, which also saves money for the federal government, Dr. Sheehy said.

Observation status also often leaves patients responsible for paying the enormous cost of going into a skilled nursing facility for rehabilitation services after their hospital stay.

In many cases, Medicare beneficiaries are blindsided by the increase in their out-of-pocket costs when classified as observation outpatients.

'Learned the hard way'

Audrey Sherman, 68, of West Toledo was shocked when she opened the Flower Hospital bill from her husband's recent admission.

The retired Toledo couple have Medicare Aetna Advantage health insurance and thought their bills were covered by the insurance plan.

"I just assumed if they put you in a bed you were admitted. Then I learned the hard way," Mrs. Sherman said.

Mike Sherman's bill was nearly $1,700, primarily for medications he was given during his two-and-half day stay last November. The Shermans were expecting instead to be billed the $65 co-pay that is charged for Medicare patients for inpatient hospital stays, Mrs. Sherman said.

Mr. Sherman, 74, retired from the University of Toledo last year and had only been on Medicare a few months when he became ill. The Shermans did not know about Medicare rules governing observation admissions in hospitals.

When patients are designated as "inpatient status," their bill is covered by Medicare Part A, except a small co-pay. When a hospital stay is designated as "outpatient observation," however, the bill falls under Medicare Part B.

Medicare Part B does not cover drugs a patient is given in the hospital for any preexisting medical conditions. For example, if a patient has diabetes and takes insulin shots on a regular basis, insulin shots given in the hospital would be billed to the patient. These type of drugs are called self-administered drugs by hospital and Medicare officials.

Flower Hospital's chargemaster rate, or list price for Mr. Sherman's two-day stay was $14,342. Private insurance companies always negotiate ahead of time what they will pay hospitals for their customers and never actually pay the list price.

Medicare Aetna's negotiated price for Mr. Sherman's visit was $2,355. Mr. Sherman was billed $1,699, mostly for his self-administered drugs.

The couple were particularly upset when they requested an itemized bill and discovered one dose of a drug he was taking at home, Victoza, cost $1,421 in the hospital.

"That was for a single shot, not for the whole vial," Mr. Sherman said.

"I said to them on the phone, 'I pay $37.50 for three months' " supply of that same drug, Mrs. Sherman added.

ProMedica is aware Medicare patients are being billed directly for self-administered drugs, so the health care company is taking steps to ensure these medications are "more equitably priced," said Hayley Studer, vice president of revenue cycles for ProMedica.

That admission to Flower Hospital in November was just the beginning of health problems for Mr. Sherman. Over the last six months he has had three hospital stays for various health issues -- each time on outpatient observation status. In total, the Shermans were initially billed about $5,000, primarily for Mr. Sherman's self-administered drugs.

The Shermans, however, fought back and with the help of the Flower Hospital patient advocate, they were able to get many of their out-of-pocket charges reduced.

The couple learned, in January, that the hospital will allow people to bring their self-administered drugs from home, which can help observation status patients keep some of those medication charges off their hospital bill.

All of the hospital systems in Toledo -- ProMedica, Mercy Health, and the University of Toledo Medical Center, the former Medical College of Ohio Hospital -- have policies which allow patients to bring in self-administered medications from home.

"You can bring your medication, but they need to be in the bottle, and we need to follow the outlined process at the various facilities," said Lori Brenner, director of care coordination for ProMedica.

Mrs. Sherman said even when she brought in her husband's drugs from home, some the bills did not accurately reflect that, which resulted in the couple being overcharged. Mrs. Sherman spent hours on the phone with the insurance company and the hospital's billing office. Eventually, ProMedica did an audit of her bill and the incorrect charges were reversed, said Jackie Lanham, utilization manager for ProMedica Regional.

Nursing center costs

Being admitted to the hospital on observation status also has major financial implications for patients who leave the hospital, but go into a skilled nursing center for rehabilitation services for further recuperation.

In 2014 about 20 percent of Medicare patients in the U.S. went from hospitals to rehab at an average cost of $454 a day, or more than $18,000 per stay paid by Medicare.

But those admitted on observation status are increasingly finding their insurance will not cover the bill and they must pay out of pocket, said U.S. Sen. Sherrod Brown (D., Ohio).

Medicare covers a senior's care at a nursing home as long as it's preceded by a three-night "inpatient" stay at a hospital -- not counting the day of discharge. Billing problems can arise, however, when a patient is considered an outpatient for some or all of the time in the facility.

"I had a patient in 2010 who needed to go to a skilled nursing facility, had stayed in the hospital for several days, and I was told she didn't meet inpatient criteria," Dr. Sheehy said.

"Here is this woman who should have only been worried about getting better, but had to worry about this billing issue," she added.

Some who are denied coverage go without the services ordered by their doctor, Ms. Brenner said.

"Some of them will go to stay with family members, various things. We get real creative, you know, church members, whatever so that the patient's safe at home," she said.

ProMedica officials said they often fight with the Medicare managed care insurance companies for patients who are denied coverage. In fact, they have a team of 30 people who spend 90 percent of their time haggling with insurance providers over Medicare observation status, Ms. Studer said.

"We don't want to just accept that observation level of care. It's more costly for the patient and it's less of a reimbursement for the hospital too," Ms. Brenner said.

Senator Brown is the sponsor of a bill which would require Medicare to count the observation time a patient spends in the hospital so their nursing homes bill would be covered. That bill also would retroactively reimburse observation patients whose nursing home care bills were denied.

His bill, however, has been introduced in previous sessions of Congress and failed to garner enough support from the Republican majority to pass in the Senate. Congress has not moved on it because "it costs money," and it would effectively mean an expansion of Medicare, Senator Brown said.

"There are people in Congress that will never support any expansion of Medicare," he added.

The fact that patients will have to be notified they are in observation status beginning in August is a step in the right direction, Senator Brown said. It does not, however, solve the larger billing issues.

Meaningful changes will come when people start putting pressure on Congress to abolish observation status, he said.

Contact Marlene Harris-Taylor at: [email protected], 419-724-6091, or on Twitter @marlenetaylor48.

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