Why Your "Status" In A Hospital Matters


“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. 

Most people believe that if they are transferred to a hospital room from the emergency room, they are “admitted” and are an “inpatient”, as opposed to an “outpatient”, who typically (although not always) leaves the same day.   However, there is another category – a sort of middle ground – known as “Observation Status”.  

You are assigned Observation Status when doctors are not yet sure how sick you are, or if you are “not sick enough” to require inpatient admission, but “too sick” to receive care at your doctor’s office.  

You might be in a hospital room, next to an inpatient, and be in observation status.  You might receive the exact same treatment, tests, and drugs as an inpatient and be in observation status.  Although observation status is intended for short periods, it doesn’t always work out that way.  You might be in the hospital for several days and remain in observation status.  

Since January 19, 2014, New York law requires hospitals to notify patients and their representatives, verbally and in writing, within 24 hours of being placed in observation status.  They are also required to explain that the patient’s Medicare, Medicaid, and/or private insurance coverage in the hospital might be affected, as well as coverage for any subsequent discharge to a skilled nursing facility or home care.  

A similar federal law was signed by President Obama on August 5, 2015 (the “NOTICE Act”), but hospitals have until August, 2016 to comply.  

The determination of whether you are sick enough to be an inpatient is usually complex, and health care professionals are required to follow many specific evaluation points established in national published guidelines.  Suffice it to say, the only way to know of your status as soon as possible is to ask.  If there is no early indication that you will become an inpatient, and you believe that you should be, enlist the help of your doctor to assign you to inpatient status, or to explain why you should not be admitted.

Observation Status equates to “outpatient” for billing purposes.  If you are not on Medicare, your insurance company will not pay as much of the bill as it would if you were admitted.  If you are on Medicare, your bills for observation status are paid under Medicare Part B, rather than Part A, resulting in a higher co-insurance rate (which might or might not be covered under a private supplemental insurance policy).  

The Observation Status issue becomes even more costly for Medicare recipients who are discharged to a nursing home for rehabilitation after a hospital stay.  Medicare will only pay for such rehabilitation services if they follow an inpatient hospital stay of three days or more.  Observation Status does not qualify.  That means that you will have to pay the nursing home bill yourself.  Typical local private pay rates are over $400 per day.

The difference in hospital billings for Medicare patients who are classified as “inpatient status” and “outpatient status” is significant.  Medicare pays an average of almost three times more for a short inpatient stay than for an observation stay.  Since inpatient status results in hospitals being paid more, a logical conclusion would be that their personnel would be more inclined to classify patients as such, rather than as outpatients.  However, Medicare has an auditing process that reviews hospital determinations for errors in areas such as the inpatient-outpatient designation.  These “Recovery Audit Contractors” are paid on a contingency basis from refunds of overpayments from hospitals and other health care providers.  If the hospital decides that a patient is in “Observation Status”, it will be paid under Medicare Part B.  However, if the audit contractor reverses an inpatient determination, the hospital must refund the payment in full, and suffer a total loss.  There is a lot of money at stake here, for both hospitals and their patients.

There are proposals in Congress to change things, among them the proposed “Improving Access to Medicare Coverage Act of 2015”.  That act would address the problem by counting all time spent by a patient in the hospital for purposes of satisfying the three-day requirement triggering Part A coverage of care, including care in a skilled nursing facility.  

Unless and until such an act becomes law, and is adopted by private insurance companies,  patients and their representatives must be vigilant to understand their circumstances and, if appropriate, advocate for reconsideration and change in status.  They will only be successful if they are supported by the patient’s doctor.  If the hospital is not persuaded to change status, then appeals must be made through Medicare to contest the determination.  

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 2015 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.