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Watch Out For Observation Status


Are you familiar with the term ” Observation Status“? When was the last time you were treated at a hospital? Hopefully never, but it is a reality that elders may find themselves in a hospital due to sudden decrease in mental function, perhaps due to a urinary tract infection, or due to a fall, or dehydration, or some other malady that requires emergency room attention and then several days of treatment in the hospital.

For many people, Medicare and their Medicare Supplement will pay for the care. But there is a huge “but”, and that is called “observation status”. In short, without any warning to the patient or the family, the hospital may code the entire stay as “observation status”, and not as an admission. This has a potentially drastic financial effect on the patient and spouse, because Medicare Part A only pays for inpatient care. And to qualify for rehabilitation afterwards, the patient needs a three day hospital admission. Observation status does not qualify as an inpatient stay. Since rehabilitation can easily cost $14,000 a month, the family can have much of their savings wiped out.

The Increase of Use of Observation Status

This use of “observation status” has increased greatly since 2006 when the Medicare Recovery Audit Contractor (RAC) program was established to root out fraud, waste and abuse. The RAC (think of it as hospitals being put on the rack, as in the Spanish Inquisition) audits hospitals to decide if Medicare is improperly paying hospitals for inpatient care, and can recover those payments from the hospitals.

Unfortunately, the Medicare law and regulations do not define “observation services” or “observation status”. So some hospitals are using a commercial system, called “Inter Qual” to determine if a patient is inpatient or outpatient, even though Inter Qual is more restrictive than the Medicare rules. Even worse, no rules require that the patient or the family receive any notice that they are on observation status. Your doctor may have thought she had you admitted, and may be as surprised as you to discover that the behind the scenes coding put you in observation status.

What can you do if a loved one is in the hospital? Number one, ask hospital staff if there is a formal admission. If not, ask the primary care doctor to call the admitting doctor to bolster the care for admission based on past medical history.

Number, two, watch for the Medicare Summary Notice that Medicare sends quarterly to see if the Medicare Part A was denied resulting in nonpayment of rehabilitation in a nursing home, as there is a right of appeal. There are many pitfalls and traps to avoid that only a person experienced in Medicare appeals can handle. And even then the chances of success may be very limited.

The Center for Medicare Advocacy located in Willimantic, Connecticut, is one of, if not the very best, organizations that deal with such Medicare issues.

In a nutshell, if your family member requires a hospital stay and will likely need rehabilitation afterwards to get back home, do all you can to have the stay coded as an admission, and not as observation status.

Attorneys Stephen O. Allaire (Of Counsel) and Halley C. Allaire are partners in the law firm of Allaire Elder Law.
Attorneys Stephen O. Allaire (Of Counsel) and Halley C. Allaire are members of the National Academy of Elder Law. Attorneys, Inc.
Allaire Elder Law is a highly respected, and highly rated law firm with offices in Bristol, CT.
We can be contacted by phone at (860) 259-1500 or by email.

If you have a question, send a written note to us and we may use your question in a future column.




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