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AARP Backs Bills That Would Close Medicare Loophole Skip to content

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Bipartisan Bills Would Close Medicare Loophole

AARP backs proposal to ensure 'observation status' hospital stays don’t lead to higher costs

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En español | Federal lawmakers introduced bills this week that would close a Medicare loophole by helping to protect seniors against high out-of-pocket costs for care after being in the hospital. AARP said it strongly supports the bipartisan measures.

Under current Medicare policy, if a beneficiary who has been in the hospital needs to go to a skilled nursing facility for more care, Medicare will pay for that care only if the patient has spent at least three days in the hospital. But many Medicare patients who go to the hospital are classified under what Medicare calls observation status, meaning that they are considered outpatients, not inpatients in the hospital, even if they remain in the hospital for days.

Because they are considered outpatients, they don’t qualify for Medicare to pay for their care in a skilled nursing facility and they have to pay out of pocket. In addition, these patients are subject to Medicare Part B rules for outpatients and so are responsible for 20 percent of the bills for their hospital care. That 20 percent can be more than they would pay if they were admitted as a regular patient and classified under Medicare Part A, which covers inpatient hospital services.

The bills introduced in the U.S. House of Representatives and Senate would allow the time patients spend in the hospital under observation status to be counted toward the three-day hospital stay Medicare requires before it will pay for care in a skilled nursing facility.

“Unfortunately, the financial impact for Medicare beneficiaries who spend time in observation can be burdensome and significant,” David Certner, AARP’s legislative counsel and legislative policy director, said in letters of support to the authors of the measures. Sens. Sherrod Brown (D-Ohio), Susan Collins (R-Maine), Sheldon Whitehouse (D-R.I.) and Shelly Moore Capito (R-W.Va.) and Reps. Joe Courtney (D-Conn.) and Glenn Thompson (R-Pa.) introduced the measures.

“These beneficiaries may be faced with paying thousands of dollars in surprise medical bills for the full cost of their skilled nursing facility care,” Certner said, and in some cases, they may forgo getting the follow-up care they need because of the cost. Federal Medicare officials have said that the number of people being treated under observation status and the length of observation stays have been increasing.

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