Improve Medicare: Correct Medicare Hospital Observation Status

Recently, the Center for Medicare Advocacy laid out our Medicare Platform for the New Congress. One of the core considerations to improve Medicare for all beneficiaries, now and in the future, is the need to reduce ongoing barriers to coverage and care. One of the key issues impeding access to Medicare coverage is the continued, and growing, use of “outpatient” observation status.

Hospital patients in “outpatient” observation status often receive care in acute care hospitals that is indistinguishable from the care patients receive when they are formally admitted to hospitals as inpatients.[1] The consequences of outpatient status are considerable, however, especially for patients who need post-hospital care in a skilled nursing facility (SNF). Since Medicare was enacted more than 50 years ago, Medicare Part A has covered SNF care only for patients who were hospitalized as inpatients for at least three consecutive days, not counting the day of discharge (since Medicare counts days by midnights, not by 24-hour periods, a shorthand for this statutory requirement is three inpatient midnights). Unless covered by Medicaid, hospital patients who were in observation or other outpatient status must pay for their SNF stay entirely out-of-pocket, or forego this necessary care.

A recent analysis of Medicare spending on post-acute care documents the steep decline in inpatient hospital admissions since 2010.[2] Many of these patients actually were in the hospital, but in “outpatient” observation (rather than inpatient) status. Declining inpatient stays covered by Medicare has resulted in a decline in Medicare-covered SNF stays – and in a parallel reduction in access to necessary SNF care.

Legislation introduced in the 113^th, 114^th, and 115^th Congresses would have counted all time in the hospital, whether called inpatient or outpatient, for purposes of satisfying Medicare’s three-day inpatient requirement for SNF coverage. Although a broad coalition of organizations[3] supported the legislation, the legislation has not been enacted. 

For the 116^th Congress, there are several alternative approaches to address the issue of observation status and reduce the harm it causes beneficiaries. Congress could:

• Reintroduce S.568/H.R. 1421, The Improving Access to Medicare Coverage Act of 2017,[4] as is.
• Reintroduce the 2017 legislation, but add a right to appeal a patient’s classification as observation or other outpatient status. (As a result of the Notice of Observation in Treatment and Implications for Care Eligibility (NOTICE) Act,[5] hospitals must inform patients, orally and in writing (using the Medicare Outpatient Observation Notice, MOON[6]) that they are in observation status if that status continues for 24 hours. However, the federal regulations implementing the NOTICE Act explicitly deny patients the right to appeal their classification as observation status patients.[7])
• Amend the Medicare statute to authorize patient appeals of observation status. (All Medicare notices except the MOON authorize patient appeals, as a matter of due process.)
• Amend the Medicare statute to allow for Part A coverage of SNF care if a patient is hospitalized as an inpatient for one day. (The Medicare Payment Advisory Commission made this recommendation in January 2015 as a less costly proposal than either counting all time in the hospital or waiving the three-day requirement entirely.[8])
• Amend the Medicare statute to allow for Part A coverage of SNF care if a patient is hospitalized, as an inpatient or outpatient, for one day. 
• Amend the Medicare statute to eliminate the 3-day inpatient requirement for Part A coverage of a stay in a SNF. (Multiple reasons support this approach, although it may be the most expensive approach.  Medical practice is different today than it was in 1965; many procedures are now performed on an outpatient basis that required extended periods of hospitalization in 1965. When Medicare was enacted, the average length of stay in a hospital for patients age 65 and over was 13 days; the average length of stay for all patients now is five days.  Medicare Shared Savings Program, such as Accountable Care Organizations, may waive the three-day inpatient requirement.[9]  Medicare Advantage plans may also waive the three-day requirement, and most do.[10])

Conclusion

Observation status has created an enormous hardship for Medicare patients who need post-hospital care in a SNF. It also creates unwanted and unnecessary conflicts between patients and providers. One or more of the alternatives identified above could help reduce the harm of observation status and help Medicare patients get the care they need. 

1/2019 – T. Edelman