May 062013


Financial Health

Sunday, May 5, 2013

A fair number of readers have spent time in a hospital. I suspect that if you have had this experience, you always thought that you actually had been “admitted” to the hospital.

Such an experience happened to an 84 year-old lady in Rhode Island who spent five days in a hospital bed with a fractured spine. She wore the standard ID bracelet and received systematic nursing care during her stay, but it was only after she was discharged that she became aware that she had never been formally “admitted.” Instead, during her five day stay the institution had classified her as an out-patient “under observation.”

She and her family became aware of this when she was discharged and transferred to a rehabilitation facility.

Regardless of what reasons the hospital had for this patient classification, the end result was that it would cost the lady thousands of additional dollars for the care that she would receive later at the rehab facility. Medicare regulations pay the entire cost of the first 20 days at a rehab center but these stays must be preceded by a minimum of three full days in a hospital as an admitted patient. If this important condition precedent — among several others — is not met, the patient becomes liable for the entire cost of the rehabilitation facility or skilled nursing center service.

This is exactly what happened to the lady in Rhode Island, and hers was not an isolated incident. The rehab facility administration told the patient’s daughter that they had four similar cases the previous week. The cost of her rehabilitation stay was $3,900, and unfortunately her Medigap supplemental policy would not cover the fee either, since these policies do not pay any out-of-pocket costs for services that Medicare does not cover.

A study of these “observation” hospital cases conducted by Brown University revealed that from 2007-09, the number of these cases increased by 34 percent. Medicare indicates to those it covers that an observation case generally can be decided as to whether the patient should be admitted to the hospital or discharged within 24 hours or less. But the Brown study found that 10 percent of patients under observation remained in that condition for at least 48 hours or more. Further, nearly 45,000 such patients were kept in this classification for 72 hours or longer. These sample statistics represented an increase of almost 90 percent during the three year period of the study.

Medicare generally has always had numerous guidelines regarding whether it would cover skilled nursing home and rehabilitation facility services. The hospital-stay requirement was merely one of them. The overall purpose of the requirements was to ensure that patients could demonstrate that their overall condition would be improved by such care, and the hospital requirement discussed in this article was one “bright-line” rule that could be used by the Centers for Medicare and Medicaid Services (CMS) to deny this coverage.

The entire “Improved Standard” and hospital “observation” classification status was finally called into question by a class-action lawsuit in federal court filed in late 2012, and subsequently settled by agreement of the parties in January of this year. The Secretary of the Department of Health and Human Services, Kathleen Sebelius, who had been sued as the defendant in the case agreed that CMS would be charged with re-writing and revising its guidelines and standards in order to prevent the abuses discussed here.

However, these revised guidelines have not yet been completed and released. So there is cause for Medicare recipients who enter a hospital or who need skilled or rehab assistance or both, to be aware of this fact. When entering the hospital, try to have someone check on your official admission status and before you enter into an agreement for rehab or skilled care treatment, be certain if Medicare will cover the cost.

Until the new regulations are issued, this is the only prudent thing to do.

Jack E. Karns is a professor of business law in the College of Business at East Carolina University. He may be contacted at:

via The Daily Reflector.


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