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Observation status is focus of AARP report

April 17, 2015
by Lois A. Bowers, Senior Editor
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The AARP’s Public Policy Institute has released a report concluding something you already know: Patients staying in a hospital under observation status can face unexpected, high out-of-pockets costs under Medicare rules compared with people who have been admitted as inpatients. But the report provides some details and also may be informative to the general public and policymakers in a position to address the issue.

Almost two-thirds of patients in observation who needed skilled nursing facility (SNF) care after hospital discharge did not meet Medicare’s three-day inpatient requirement for coverage, according to “Observation Status: Financial Implications for Medicare Beneficiaries” (PDF). Some of these patients owed more than $12,000 for post-hospital SNF care, more than five times the amount owed by patients who met Medicare’s three-day prior hospital inpatient stay requirement for coverage. And 10 percent of Medicare observation patients paid more out-of-pocket for hospital services than if they had been admitted as inpatients.

“These findings demonstrate the disproportionate financial impact on some patients who are unwittingly caught by Medicare’s arbitrary rules for coverage of hospital outpatient services and skilled nursing facility care,” Keith Lind, JD, MS, senior strategic policy adviser for the institute and co-author of the report, said in a statement. “The Medicare rules should change so patients get the care they need without the unnecessarily high costs.”

To help protect Medicare beneficiaries from having to pay disproportionately high out-of-pocket costs, the AARP supports:

  • Placing a cap on total beneficiary out-of-pocket costs for observation services and other outpatient services to match the one-time Medicare Part A deductible for inpatients.
  • Crediting time spent in observation toward the three-day hospital inpatient stay required to qualify for SNF coverage.
  • Working to replace the three-day prior hospital inpatient stay requirement with appropriate clinical criteria related to the need for SNF care.

As previously reported, the AARP has endorsed the bipartisan Improving Access to Medicare Coverage Act (S. 843/H.R. 1571), which would count a patient’s time in observation toward the three-day hospital inpatient stay requirement for Medicare coverage of SNF care.

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Observation status would count toward three-day inpatient stay under act