The Affordable Care Act includes a number of measures intended to rein in unnecessary or wasteful spending by Medicare. These are generally grouped under the label “value-based purchasing”. One key element of value-based purchasing are penalties for hospitals that have high levels of readmissions after discharge that went into effect in 2012. The penalties, which gradually ramp up to 3% of inpatient Medicare reimbursement to a hospital, are designed as an incentive for hospitals to provide quality care while in the hospital and to assure that the patient is provided with a smooth handoff to quality post-acute care after a hospital visit.
Hospital readmissions are down significantly since excessive readmission penalties have come into effect but according to an article in the Wall Street Journal on December 2, 2015 entitled “U.S. Rules Reshape Hospital Admissions” http://www.wsj.com/articles/medicare-rules-reshape-hospital-admissions-1449024342 the new rules have also prompted hospitals to reclassify many more hospital visits as “observations” rather than “admissions”. In most cases, a stay of even a few days may be classified as “observation” rather than an inpatient “admission” and a patient can be on “observation” status even though given a room. Medicare treats “observation” visits as lower cost outpatient treatment and they do not trigger a readmission penalty because they don’t count as an admission or readmission.
So if you or your loved one is cared for in a hospital on “observation” status rather than as an inpatient “admission”, gets a room and receives the same level of care, why should you care about how the hospital classifies the visit? The big risk for a patient and patient’s family in an observation visit is that Medicare does not treat an observation visit as a three-day hospital stay that triggers Medicare payments for post-acute care. As a result, a patient treated for three or four days in a hospital on “observation” status who then needs rehabilitation care or time to recover in a skilled nursing facility would be fully responsible for these costs rather than Medicare fully paying for up to 20 days of skilled nursing care and partially paying for up to 100 days of skilled nursing care if the patient needs that much care and is still making progress toward recovery. The WSJ article cites families being on the hook for $20,000 of skilled nursing care because a hospital classified a four-day visit as “observation” rather than an inpatient “admission”.
I would urge any patient or family of a patient to strongly advocate to be formally admitted to a hospital for any serious injury or condition and to use right to appeal to Medicare if you or your loved one is not admitted or is admitted but is being discharged in less than three days to skilled nursing care. It is unfortunate that the stress of any hospital visit for a patient or a loved one needs to be further complicated by worrying about “observation” vs. “admission” status but the downstream costs can be dramatically higher for one vs. the other.