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Am I in the Hospital or Not? Why Hospitals are 'Observing'--Not Admitting--Patients

Friday, December 06, 2013

Increasingly, hospitals are "observing," instead of admitting, Medicare beneficiaries, even when they are there for more than 48 hours.

Health care experts say the situation is far from ideal for both hospitals and patients. Hospitals are feeling increased pressure from Medicare to classify patients the “right” way or risk losing reimbursements. In turn, patients face higher bills for services they receive in the hospital, and also the possibility of not qualifying for Medicare-covered nursing home care after their hospital stay.

One reason for hospitals to use "observation status" is to lower their chances of getting no payment at all from Medicare for what an auditing contractor may later find was an unnecessary admission. In addition, starting in 2012, the Patient Protection and Affordable Care Act imposed penalties for hospitals with high rates of readmission. Hospitals can avoid the penalty if the patient was not officially admitted during his first visit.

How prevalent is observation status and how rapidly is it increasing? What challenges are hospitals facing to comply with state law and federal rules regarding hospital admissions? What administrative solutions are being tried by Medicare? What is the "two-midnight" rule and how does it work? What does it all mean for out-of-pocket costs to beneficiaries and reimbursements for hospitals?

A distinguished panel of experts addressed these and related questions.

Keith Lind, senior policy advisor, AARP Public Policy Institute, reported findings from a recent analysis of observation services and discuss changes that AARP is recommending.

Marc Hartstein, director, Medicare Hospital and Ambulatory Policy Group, Centers for Medicare and Medicaid Services, explained observation status and provide an overview of a recently released Medicare rule.

Carol Levine, director, Families and Health Care Project, United Hospital Fund, discussed the impact on Medicare beneficiaries.

Linda Fishman, senior vice president for public policy analysis and development, American Hospital Association, highlighted the challenges to hospitals in conforming to the recent Medicare rule and state laws. She will also comment on proposed changes to the rule.

Ed Howard of the Alliance and Susan Reinhard, director of the AARP Public Policy Institute co-moderated.

Contact: Marilyn Serafini (202)789-2300

Follow the briefing on Twitter: #ObservationStatus

The event was sponsored by the nonpartisan Alliance for Health Reform and the AARP Public Policy Institute.

Transcript, Event Summary and/or Webcast and Podcast

Transcript: Full Transcript (Adobe Acrobat PDF), 12/5/2013
Full Webcast/Podcast: Video from C-SPAN

Speaker Presentations

Fishman Slides (Adobe Acrobat PDF), 12/5/2013
Hartstein Slides (Adobe Acrobat PDF), 12/5/2013
Levine Slides (Adobe Acrobat PDF), 12/5/2013
Lind Slides (Adobe Acrobat PDF), 12/5/2013

(If you want to download one or more slides from these presentations, contact us at info@allhealth or click here for instructions.)

Source Materials

Agenda (Adobe Acrobat PDF), , 12/5/2013
Speaker Biographies (Adobe Acrobat PDF), , 12/5/2013
Materials List (Adobe Acrobat PDF), , 12/5/2013
Source List (Adobe Acrobat PDF), , 12/5/2013

Offsite Materials (briefing documents saved on other websites)

Observation Care: High-Value Care or a Cost-Shifting Loophole? [Perspective], The New England Journal of Medicine , 7/25/2013
Making Greater Use of Dedicated Hospital Observation Units for Many Short-Stay Patients Could Save $3.1 Billion a Year, Health Affairs , 10/1/2012
Hospital Officials Complain to Senate Panel About Medicare Efforts on Observation Care, The Washington Post , 6/26/2013
Faulty Gauge? Readmissions are down, but observational-status patients are up-and that could skew Medicare numbers, Modern Healthcare, 6/8/2013
The New CMS Two-Midnight Rule on Hospital Stays: Observation Status Still Confuses and Costs Medicare Beneficiaries [Commentary], United Hospital Fund , 9/3/2013
Medicare Beneficiaries: Observation Stays Deny Access to SNFs [Issue Brief] (Adobe Acrobat PDF),American Health Care Association , 7/3/2013
Memorandum Report: Hospital’s Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries (Adobe Acrobat PDF),Department of Health and Human Services , 7/29/2013
The RAC Burden: How a Well-Intentioned Federal Program Has Become a Drain on Hospitals, American Hospital Association , 1/1/2013
Three Observation Status Bills Have Been Introduced: Only Congressman Courtney’s Has Immediate Promise, Center for Medicare Advocacy, Inc. , 11/27/2013
Two-Midnight’ Admission and Medical Review Criteria Policy, American Hospital Association , 11/21/2013
Under Observation? Some Hospitals Admit just 10% of Patients, The Advisory Board Company: Daily Briefing , 7/31/2013
Rapid Growth in Medicare Hospital Observation Services: What’s Going On?, AARP Public Policy Institute , 10/1/2013
Mistaken Admission: Establishing Medical Necessity for Inpatient Procedures (Adobe Acrobat PDF),CNA HealthPro: Vantage Point , 1/1/2009
Safe Discharge Home: One Community’s Response to Improving Transitions from Observation Care, Journal of the American Society on Aging , 1/1/2013
Sharp Rise in Medicare Enrollees Being Held in Hospitals for Observation Raises Concerns About Causes and Consequences, Health Affairs , 6/1/2012
Sicker, More Complex Patients are Driving Up Intensity of ED Care [Issue Brief] (Adobe Acrobat PDF),American Hospital Association , 5/1/2013
Medicare Program Final Rules and Regulations (Adobe Acrobat PDF),Centers for Medicare & Medicaid Services and Department of Health & Human Services, 8/19/2013


Hospital patients must be informed of their status by January 2014, but they still might not know what “Observation Status” means, Carol Levine, director, Families and Health Care Project , stated at a December 6 Alliance briefing, Am I in the Hospital or Not? Why Hospitals are 'Observing'--Not Admitting--Patients.

Keith Lind

Linda Fishman

Marc Hartstein


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