Observation Status Notification: a Partial Solution

R. Myles Riner

R. Myles Riner , MD, FACEP

Partner Emeritus

Published October 31, 2014

In a recently published article in HealthLeaders Media, Observation Status Sparks Legal Firestorm, the author (Christopher Chaney) points to the high differential in out-of-pocket costs for Medicare, Medicaid, and even many commercial plan enrollees around the issue of inpatient admission vs. outpatient observation status, and around coverage for subsequent skilled nursing facility (SNF) admission, as a serious bone of contention for all the stakeholders. ‘Firestorm’ might be an understated way to describe the response to these benefit coverage rules.

In a previous post, I discussed the controversy ignited by the Centers for Medicare and Medicaid Services' (CMS’) Two-Midnight Rule, the MAC and RAC audits and recoupment demands that precipitated blowback from hospitals and the complaints from patients that caused members of Congress to push CMS into reconsidering the rules.

Mr. Chaney’s article focuses on state efforts to enact laws requiring hospitals to inform and provide written notices to patients about the potential financial impact of decisions on observation vs. admission - which of course is likely to only exacerbate the frustration of providers subject to these rules; as it really undermines the physician-patient relationship at a time when these decisions should focus on what is in the patient’s best interests from a medical standpoint.

Certainly, financial implications should be a part of these care discussions and shared decision-making; but the two-midnight rule and the three-day admission for coverage of subsequent SNF care have all too often resulted in the torturing and disruption of an often difficult decision-making process for both provider and patient, in what is often a high-anxiety circumstance.

Requiring prior notification and an effective appeals process does potentially help address some of the issues for enrollees, but ignores the fact that it is not always easy, at the time these decisions are made, to predict length of hospital or observation stay or the need for subsequent SNF care. It also ignores the fact that patients, like my own sister, may have their inpatient admission status reverted to observation status several days after they have been discharged to the SNF.

The Chaney article quoted Terry Berthelot, senior attorney at Center for Medical Advocacy, who said:

“There is a pressing need for federal legislation to help clear up confusion about the difference between observation status and admission. There should be federal legislation requiring both notice and expedited appeal rights for Medicare beneficiaries admitted to the hospital as outpatients. Whether a patient requires an inpatient level of care is a factual issue. When the hospital and the patient disagree as to whether the patient needs to be hospitalized or could be treated in an outpatient setting, a third party arbiter should step in and review the case. A meaningful appeal process would ensure that Medicare beneficiaries receive the kind of care they need without having to spend large sums of money out-of-pocket.”

I guess that bringing in a third party to arbitrate these medical decisions, or having an expedited appeal of these decisions, may have helped my sister and other patients who have confronted these issues; but to my mind this is not the needed solution. CMS turned all but a blind eye to my sister’s repeated attempts to reverse on appeal (with my help) the financial consequences of multiple successive and perverse ED-to-observation status-to-SNF readmission cycles. No doubt, tens of thousands of other patients have fared the same.

When it comes to encouraging patients to use the proper and most cost-effective resources for their care, coinsurance and denial of coverage incentives may make sense when these decisions are primarily determined by the patient. Decisions about where best to manage patients in the hospital or post-discharge setting should really be primarily determined by care providers and discharge planners based on patient need and published necessity-of-care standards, with appropriate input from the patient and their family. These decisions should not involve jumping through nonsensical qualification hoops or gazing at crystal balls — and certainly shouldn’t discourage patients from following the advice of caregivers for fear of coverage denials or higher out-of-pocket costs when they are medically at risk.

CMS needs to rethink this entire out-of-pocket expense cost-sharing and reimbursement structure for Medicare and Medicaid enrollees when it comes to inpatient, observation, SNF and even home health care. If that means revising premium structures, overall coinsurance share of costs, or other coverage and cost formulas to ensure budget neutrality with these changes; so be it. Maintaining this perverse set of rules, and continuing to undermine the physician-patient and hospital-patient relationship to preserve a poorly conceived utilization disincentive program, is both counterproductive and cruel.

This post originally appeared at The Fickle Finger on Oct. 17, 2014.

Partnering to improve patient lives

Vituity branding orange wave pattern background