Medicare beneficiaries who are treated in the hospital under a so-called “observation status” instead of being formally admitted should be allowed to appeal that categorization, AARP and AARP Foundation argue in a legal brief filed as part of a long-standing federal lawsuit. The way patients are classified can cost many older Americans thousands of dollars in health care costs, especially for rehabilitative care they need in skilled nursing facilities after being discharged from the hospital.
The way Medicare works, if someone needs to go from the hospital to a skilled nursing facility for more care, Medicare will pay for those services only if the beneficiary has spent at least three days in the hospital before being transferred to rehab. (The Centers for Medicare and Medicaid Services [CMS] has suspended that rule to some extent during the COVID-19 pandemic.) Such aftercare is common for people who have had strokes or other injuries and illnesses for which they no longer need to be in the hospital but who require more care before they can safely go home.
Medicare enrollees could lose out financially even if they don't have to go to rehab. If someone is in the hospital but classified as an outpatient, Medicare says they are subject to Medicare Part B rules, making them responsible for 20 percent of the bills for their hospital care. Medicare Part B pays for outpatient services. That 20 percent can be more than they would have to pay if they were admitted as a regular inpatient and classified under Medicare Part A, which covers inpatient services after a deductible is paid.
Patients often in the dark about their status
What often happens is that Medicare enrollees who go into the hospital think they have been admitted as a regular patient but instead are classified as being under observation, even if they get the exact same treatments and care as that of someone who is formally admitted. When they go to a rehab facility or later see their hospital bill, beneficiaries who were under observation status are often surprised to learn that Medicare has not picked up the tab and they owe thousands of dollars out of pocket because they weren't officially inpatients.