Inpatient or Observation?

This Hospitalization Admission Decision Could Cost You $ 5,000

No one likes surprise medical bills, but here is a situation that surprises many. Take two hospitals, each caring for a senior with similar symptoms for three days with seven days of rehabilitation after discharge. 

Based upon how the patient is admitted, the cost to the patient can differ by more than $ 5,000. One could have almost all of the costs of care covered, while the other pays large amounts out of pocket for the same care.

Unfortunately, there is a high probability that neither patient understood that either result was possible nor how to take steps to ensure that thy received the best outcome. The key determinant is how the patient was admitted to the hospital. 

What are the differences that determine whether your care is covered or not, and how do you minimize the chances that you’ll pay most of the bill?

How did we get here?

Medicare is tasked with two conflicting goals. One is to provide excellent care for enrollees. The other is to reduce the cost of providing that care. Hospitals and doctors provide the services, but must follow Medicare guidelines in order to have care reimbursed.

Medicare rightly wants to eliminate unneeded hospital stays, and if a patient requires hospitalization, that the care they receive is effective and addresses the condition(s). 

Hospitals want to provide good care but want to be paid by Medicare for that care. Many hospitals rigorously follow the guidelines to eliminate any doubt as to whether they should receive payment for the care they provide. 

Unfortunately, this conflict leads to situations where well-meaning decisions have unintended consequences. This conflict has resulted in a situation that ends up costing many seniors thousands of dollars.

The problem occurs when a senior is examined and enters the hospital. The process under which that occurs can have significant financial impacts. 

All Hospital stays aren’t the same.

The situation in question results from how the hospital evaluates the patient’s condition, and how their hospital stay is classified. 

The admission to the hospital can either be as an inpatient admission or an outpatient observation.  Even though the results may be similar – both resulting in a hospital stay, medical treatments and discharge, how Medicare treats those services is radically different. 

Under obser-vation costs can easily approach $ 1,000.

If a patient is admitted to the hospital on an inpatient basis, then the hospital stay and costs of doctor services and medicines administered are all covered under the appropriate parts of Medicare, subject to those deductibles.

However, if the patient is admitted under observation, then the patient is required to pay 20% of the doctor(s) bills and for all medicines administered in the hospital.  There are some Medicare provided limits, but these costs can easily approach $ 1,000.

It gets worse.

As bad as this sounds, the situation is even worse when the patient is discharged but unable to go home. 

If the patient was admitted on an inpatient basis, and spent 3 days in the hospital, then some coverage is provided for up to 100 days in a nursing care facility. 

On the other hand, if the patient was admitted under observational status, no matter how many days they were in the hospital, there is no coverage for skilled care facilities. That means that ALL costs associated with a skilled nursing facility are the responsibility of the patient. The costs of this care is high, so running up bills in the thousands of dollars happens quickly.

How do you minimize the risks?

As in many things, knowledge is power. If the worst happens and you are aware of the situation, you can take steps to minimize the financial costs.

Ask First

While it isn’t always possible, when the doctors are suggesting that you or a loved one should be admitted to the hospital, inquire whether that admission will be on an inpatient or observational basis.

Ask Later and Negotiate Change of Status if Appropriate

If you have been admitted and you aren’t certain how you have been admitted, you should ask at the first opportunity. Hospitals are required to tell you if if you have been admitted under observational status within 36 hours of admission. If your short stay looks like it will extend beyond 3 days, talk to the hospital about changing the status from observational to in-patient. 

Understand Discharge Options

If you are being discharged after hospitalization for observation, and you are capable of going home, request that option and if home healthcare is required, ask for the hospital to set it up. If discharge will require skilled nursing care, inquire about being released to an Inpatient Rehabilitation Hospital. Your last resort is to go to a skilled nursing facility, but know that you will be responsible for all costs.

Start the Nursing Home Appeal

Upon release from the nursing home, notify them that you will be appealing the denial of medicare coverage and ask them to submit a ‘demand bill’ to Medicare. This will start the appeal process.

This topic is complex and poorly understood. While all parties are acting in good faith, the result has been to create uncertainty and confusion. Unfortunately this often ends up hitting seniors with unforeseen financial consequences.  By understanding both the issue and the circumstances of admission, the worst can be avoided.
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