In recent years, the Centers for Medicare & Medicaid Services (CMS) cracked down on hospitals for services rendered in a “medically-unnecessary setting,” that is the hospitals were choosing to admit patients as inpatients rather than under observation. CMS responded by penalizing hospitals who admitted patients who should have been under observation first. Hospitals reacted by severely cutting the number of inpatient cases and subsequently dramatically increasing the number of outpatients. One AARP study found that the percentage of observation services increased by 94 percent. For patients, the financial magnitude of the change is immense. As an inpatient, patients could incur a maximum of $1,260 in deductibles for 2015, however; there is no cap on beneficiary charges for patients admitted under observation status. The effect can be financially devastating.
Hospital stays fall into two categories. Medicare Part B pays for outpatient care whereas Medicare Part A pays for inpatient care. The decision as to who is an inpatient and who is an outpatient is determined by the hospital. For the patient, the difference in care may not be much but there are substantial differences in the patient’s share of costs since outpatient care can stick a patient with huge medical bills. This is especially true if the patient goes from the hospital setting to a skilled nursing situation since patients seen as outpatients don’t meet the three-night hospital requirement.
CMS tried to clarify when a patient met admitting requirements with a rule called the “two midnight rule.” Under this rule, only when a doctor expected a patient to spend two nights in the hospital could he or she admit the patient as an inpatient. That rule allowed Medicare auditors to bypass review claims for inpatient hospital stays of longer than two midnights. The two midnight rule was never fully enforced but it was highly unpopular.
At the beginning of July, CMS modified the two-midnight rule regarding inpatient admissions despite calls to scrap it completely. The new plan calls for softening the rules to allow physicians to exercise judgement on a case-by-case basis. It would also remove oversight of those decisions from its administrative contractors and allow quality improvement organizations to enforce the policy (a more lenient review system). Under the new policy, payment contractors are to assume that a hospital admission was appropriate if the patient’s stay spanned two-midnights.
A geriatric care manager can help clarify whether a patient is an inpatient or outpatient and provide care options. He or she might not be your best option if you’ve already been discharged and received a bill. In that case, if you find yourself in a dispute with CMS over patient status, CMS provides an appeals process but it can be lengthy. In such cases, you may be served better by hiring an elder law attorney.