More debate ahead on Medicare ‘observation stays’

Bill to require patient notification of hospital admission status not the final word

By Andy Marso, KHI News Service, August 04, 2015

A bill headed to President Barack Obama’s desk will require hospitals to notify Medicare patients if they were admitted or only kept under observation.

But advocates for hospitals and nursing homes say there’s more work to be done on Medicare regulations that tie patients’ hospitalization status to reimbursements for skilled nursing care afterward.

The bill that unanimously passed both houses of Congress mandates that hospitals must inform Medicare patients within 36 hours whether they were admitted or kept under observation.

That’s important because patients who are frail may be transferred to a skilled nursing facility for further recovery before they can return home. Medicare will currently only reimburse that skilled nursing care if the transfer came after three consecutive days of inpatient hospital admission. Days spent in the hospital under observation do not count.

LeadingAge Kansas, an association that represents nonprofits that provide services for elderly Kansans, pushed for similar legislation at the state level during the 2015 session, but legislators declined to take it up.

Debra Zehr, LeadingAge’s president and chief executive officer, applauded Congress for passing the federal bill, which is called the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act.

“It is a matter of transparency and fairness,” Zehr said. “Now Medicare beneficiaries who are hospitalized must be given timely notice when they are placed on observation status, and to be informed about the potential impact on Medicare payment for other services after they are discharged from the hospital.” 

But Zehr warned that the federal bill, while an “important step in the right direction,” does not resolve the Medicare reimbursement issues that swirl around the federal government’s three-day stay requirement.

Cindy Luxem, president and chief executive officer of the Kansas Health Care Association, which represents for-profit nursing facilities, agreed.

“The three-day policy seems to be rather antiquated, but it is still what drives providers,” Luxem said. “The NOTICE Act is a step in the right direction until the policy of the three-day stay is eliminated altogether.”

The facilities that Luxem’s organization serves have said that increasing use of observation stays by hospitals has them more frequently sending large bills to surprised patients who thought their rehabilitation would be covered through Medicare.

If the patient can’t pay, it can be difficult for those facilities to recoup the costs of the care provided.

“The issue of beneficiaries not being told of their outpatient status during a hospital visit is very real and affects many Kansas seniors on a frequent basis,” Luxem said.

The NOTICE Act is intended to at least let Medicare patients know whether they are eligible for covered skilled nursing care after hospitalization. But it does not address what those who find out they are not covered can do if they need rehabilitation services before they can safely return home after a hospital stay.

Hospitals’ use of observation stays has increased since Medicare audits began scrutinizing short-term admissions and sometimes denying reimbursements when auditors determined patients were admitted unnecessarily.

Chad Austin, vice president for the Kansas Hospital Association, said hospitals also will continue to push for HR 290, a federal bill to eliminate the three-day rule, even if the president signs the NOTICE Act, as expected.

“While this legislation will provide some additional information to patients, we are still trying to advocate for the underlying issue, which is the elimination of the three-day prior hospitalization requirement for Medicare coverage” of skilled nursing facilities, Austin said.

The nonprofit KHI News Service is an editorially independent initiative of the Kansas Health Institute and a partner in the Heartland Health Monitor reporting collaboration. All stories and photos may be republished at no cost with proper attribution and a link back to KHI.org when a story is reposted online.

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