Medicare pilot program meant to revise policy that leaves seniors with costly bill

August 9, 2012

Medicare has launched a pilot project to test whether it can relax hospital-payment rules to help the growing number of seniors who are shelling out thousands of dollars for follow-up nursing-home care.

The issue involves what should be an easy question: Is the Medicare beneficiary an inpatient or an observation patient?

The answer can mean the difference between Medicare-covered follow-up nursing-home care or a senior facing an unexpected whopper of a bill.

Though many seniors stay in the hospital for several days and are in a regular hospital room while being treated, they don’t always know that the hospital has classified them as an observation patient, which is considered outpatient care.

Under Medicare rules, patients must have at least three days in the hospital as an inpatient — not just for observation — to qualify for follow-up care in a nursing home. In addition to generally higher hospital co-payments, hospital observation patients can be billed any amount by their hospital for the routine maintenance drugs they need. Some have reported charges of $18 for one baby aspirin and $71 for one blood pressure pill that costs 16 cents at a local pharmacy.

This may all come as a surprise because hospitals don’t have to tell Medicare beneficiaries they are in observation care.

Currently, if Medicare decides that a hospital has billed it for inpatient treatment of a patient who should have received observation services, the facility can lose its entire payment.

That may prompt hospitals to put too many people in observation care, Medicare said in the rule announcing the pilot program.

Under the pilot program, the 380 hospitals participating will be able to rebill Medicare for observation services if claims for inpatient care are rejected. Medicare officials want to see if that takes some of the pressure off hospitals.

Advocates for seniors say the pilot project won’t help observation patients.

Toby Edelman, a lawyer at the Center for Medicare Advocacy, said the classification should be scrapped.

“It’s pretty arbitrary,” she said. “People get the same care whether they are inpatient or observation, especially when they are co-mingled in the hospital.”

The center has filed a lawsuit against the government to eliminate observation care.

A Medicare spokeswoman declined to respond to questions about the project or provide a list of the participating hospitals because of the litigation.

Medicare officials are also asking for feedback on whether to tighten the rules for observation care, including setting a time limit or specifying which diagnoses require a full hospital admission.

Medicare recommends that patients be in observation care for no more than 24 to 48 hours. The number of patients in observation care beyond 48 hours more than doubled, to 7.5 percent, between 2006 and 2010, Medicare said.

During the three-year pilot program, if Medicare determines that an inpatient level of care was inappropriate, the participating hospitals will be able to resubmit bills to Medicare for each treatment or procedure the patient received, as if that patient were an observation patient. The hospitals will receive 90 percent of the allowable Medicare payment for these services. In return, the hospitals give up the right to appeal to Medicare for the full inpatient payment.

The pilot program doesn’t go far enough for the American Hospital Association.

“It is limited to a small fraction of hospitals affected by the policy, underpays hospitals for care provided and requires hospitals to waive all appeal rights for these claims,” spokeswoman Alicia Mitchell said.

Kaiser Health Newsis an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

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