Medicare patients who were under ‘observation’ are stung by hospital bills

July 07--Jane Hardin of Modesto said her 91-year-old mother was in the hospital with severe shoulder pain last month and then was placed in a nursing home for medical rehab.

A big surprise came when her mother received a letter from her Medicare health plan saying the hospital bills were not covered. Hardin learned her mother was on "observation" status in the hospital and was classified as an outpatient, even though nurses and doctors attended to her in a hospital bed and ran tests, and she stayed overnight in a hospital room.

Because she was never classified as an inpatient at the hospital before she was moved to a nursing home, Medicare most likely won't pay for the nursing home care.

Hardin and her brother are not sure how their frail mother would react if she was aware of the thousands of dollars in medical bills not covered. "She has severe diabetes and severe heart problems," Hardin said. "We don't know if the stress of medical bills and insurance problems will cause her to have a heart attack and a worsening of her condition."

Patients like her mother are caught in a hard-to-fathom issue that's affected Medicare patients everywhere. Seniors in their 70s or 80s, who may have a hard time understanding the basics of Medicare, go to the hospital with a medical emergency and receive the typical hospital services, but later find out they were classified as outpatients and were never admitted. In those cases, Medicare doesn't pay for medications, physician fees and other services provided to the patients.

Some patients are sent to a nursing home on a physician's advice and assume those services will be covered. But Medicare covers nursing home care only for people who were inpatients in the hospital for three days. Patients who were under observation in the hospital and classified as outpatients could be stuck with thousands of dollars in nursing home bills.

Hardin is trying to assist her mother who is 2,500 miles away in a facility in Pennsylvania. But the problem is affecting seniors in the Modesto area as well.

Maria Profeta, a program manager for the Health Insurance Counseling and Advocacy Program in Stanislaus County, said she dealt with five or six patients who asked for help with the problem last year. A counselor at the HICAP office received another complaint Wednesday.

Profeta said two complaints regarded hospital bills that Medicare didn't cover because the people were considered outpatients; the others had bills from nursing homes.

One problem was an easy-to-remedy mix-up with a Medicare Advantage plan. But Profeta could not help the other people with their complaints.

"Unfortunately, there was nothing you could appeal," Profeta said. The office is advising hospitalized seniors, or their families, to make sure to ask if they're on observation status or have been admitted as inpatients.

Profeta speculated that the office has not seen more complaints because of the large number of seniors in Stanislaus County who have Medi-Cal benefits in addition to Medicare. The Medi-Cal coverage protects them.

Profeta said HICAP counselors in the Bay Area and other counties tell of regularly dealing with complaints about observation status.

Under federal regulations, hospitals can classify patients as under observation if they are sick or injured enough to be in the hospital but need to be evaluated for admission as an inpatient.

As of March 8, hospitals were supposed to start giving standardized notices to Medicare patients admitted for observation, telling them the services may not be covered.

"It is a problem that definitely impacts people with Medicare," said Rhonda Richards, a senior legislative representative for AARP. "People may not be aware that they need to have three days in the hospital as an inpatient to cover the skilled nursing care they need."

"There are some efforts to try to improve awareness and better inform Medicare beneficiaries about this," Richards said.

Legislation has been introduced in Congress to deal with the problem for seniors. The bill would count time spent in the hospital under observation toward the three-day rule for coverage of nursing home care. The legislation is supported by leading senior advocacy groups and a national association of nursing home owners.

AARP also said it supports policies to cap patients' out-of-pocket costs for observation services and replace Medicare's three-day inpatient rule with clinical criteria for admission to a nursing home.

Richards said a study found that in 2012 Medicare beneficiaries under observation in hospitals had 617,700 hospital stays lasting three days but were not classified as inpatient stays.

The Center for Medicare Advocacy based in Washington, D.C., says it's part of a coalition of groups fighting the misuse of observation status by hospitals. "The center has heard repeatedly about beneficiaries throughout the country whose entire stay in the hospital, including stays as long as 14 days, is classified by the hospital as outpatient observation," says its website at http://www.medicareadvocacy.org/medicare-info/observation-status/.

A blog in the journal Health Affairs suggested that hospitals overusing observation status may be trying to avoid Medicare penalties for patient readmissions. To create incentives for improved quality of care, the federal Medicare program assesses financial penalties to hospitals with high rates of patient readmission within 30 days of a previous hospital stay.

Doctors Medical Center of Modesto had no comment Thursday and did not say if it was complying with the patient notifications. Sutter Health of Sacramento, the parent of Memorial Medical Center, did not provide a spokesperson to comment.

Alignment Health, a Medicare Advantage plan serving more than 7,000 people in Stanislaus County, said its customers are covered for medically necessary services in an outpatient department with prior authorization. The coverage includes services in a hospital emergency department, lab and diagnostic tests billed by a hospital and mental health care.

Alignment said it could not comment on whether other Medicare Advantage plans protect patients against the observation status problem.

Hardin said her mother received a number of services in the hospital, such as blood tests, an MRI, and care to make sure her diabetes was under control. The elderly woman was in the hospital for two days, was released, and returned to the hospital for two days after falling at home.

Hardin spreads around the blame for what's happened to her mother and hopes to use a patient advocate to resolve her bills.

"Some hospitals don't have clear guidelines on how to word the notices to patients and some are afraid they are going to get sued for doing it the wrong way," Hardin said.

The Center for Medicare Advocacy advises hospital patients placed on observation status to ask a doctor to admit them as an inpatient, ask for written notice if they are kept under observation and tell the hospital they want their status changed because the care is medically necessary and they're receiving an inpatient level of care.

Ken Carlson: 209-578-2321. @KenCarlson16

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