Update to Hospital "Observation" Status - New Notice Required

In 2015 I wrote this about being in a hospital:

  “Observation Status”

If you are in a hospital, these are two words that you do not want to see or hear.  They likely will cost you more in co-payments and a lot more if you are discharged to a skilled nursing facility for rehabilitation.

The article goes on to explain the circumstances of this status, the likely financial ramifications, and the state of new and coming laws regarding notice to patients. To its credit, New York began requiring written notice in 2014. However, problems persist. A similar federal law made effective August 6, 2016 also requires written notice beginning March 8, 2017. 

Although private managed care companies can waive the financial restrictions resulting from “observation status”, and sometimes do, Medicare does not, and its recipients often suffer. Perhaps the biggest surprise for these recipients is learning that Medicare will not pay for any of the cost of rehabilitation in a skilled nursing facility after a hospital stay because they were not “admitted” to the hospital as an “inpatient”.

The new notice is called a “Medicare Outpatient Observation Notice (MOON)”. It can be found at https://www.cms.gov/Medicare/Medicare-General-Information/BNI/index.html. In two pages it packs a lot of information. Reading it will raise more questions, and no doubt will cause anxiety for those in “observation status”. In many cases, their ability to understand will be compromised by medication.

The biggest potential financial problem for Medicare recipients is not having Medicare pay for the cost of rehabilitation in a skilled nursing facility after discharge from the hospital. While the rules require a hospital stay of at least three days (not including day of discharge) in order to trigger coverage for rehabilitation after discharge, “observation status” in a hospital can last longer than three days, thus disqualifying patients from Part A coverage. The notice does nothing to change that. Also, the rules state, without explanation, that patients have no right to appeal or challenge their observation status because the MOON notice is not an “initial determination”. 

Many people believe these rules are unfair and need to be changed. A nonprofit organization known as the Center for Medicare Advocacy has begun a petition that it intends to send to the federal Centers for Medicare and Medicaid Services (CMS), an agency of the Department of Health & Human Services that administers the programs. The petition calls for CMS to count all time spent in a hospital toward the three-day requirement and to give patients appeal rights. It can be found at https://secure.everyaction.com/MvrJkyUqNUiZSeOYjMqFFA2 or through the Center’s website (http://www.medicareadvocacy.org/).

The issue of “observation status” is complicated. It involves decision-making by hospital personnel and the patient’s own doctor, and can change during a hospital stay. Behind the scenes are hospital administrators who fear CMS auditors, whose decisions to retroactively change what they consider to be erroneous “inpatient” designations to “observation status” can result in hospitals having to pay back to Medicare money that they received under Part A. Such decisions result in a total loss for the hospital. Great sums of money are at stake.

Unless and until the law is changed to count all time spent in a hospital toward satisfying the three-day requirement, patients and their advocates must be vigilant in understanding their status, and be prepared to advocate for a change in status. Hospital personnel should be asked about the patient’s status every day of the stay. It is not enough to hear that the patient has been “admitted” to the hospital. The patient has the right to know whether he or she is classified “inpatient” or “observation status”.

            The rules regarding Medicare and insurance coverage are extremely complex.  Since each particular case has its own unique facts, the reader is cautioned that the above summary cannot be considered legal advice and should consult with appropriate legal and medical advisors.  

Copyright 2017 Joseph A. Bollhofer, Esq.


Editor’s Note:

Joseph A. Bollhofer, Esq., is an attorney who practices law in the areas of elder law, Medicaid, Medicare, estate and business planning and administration, and real estate. He is a member of the National Academy of Elder Law Attorneys (NAELA) and of the Elder Law, Real Property, and Surrogate’s Court Committees of the Suffolk County Bar Association and the Elder Law, Real Property Law and Torts, Insurance and Negligence Sections of the New York State Bar Association. He has been serving area residents since 1985 and is admitted to practice law in New York and New Jersey. His office is located at 291 Lake Ave., St. James, NY. (631-584-0100). For reprints of this article and others send a request to info@bollhoferlaw.com or visit www.bollhoferlaw.com.  

Medicaretim galligan