Understanding Medicare: The Observation Status Glitch

The federal government recently addressed a very expensive glitch in the systematic treatment of patients in hospitals throughout the country, which mandates that hospitals provide notice as to a patient’s observation status.

As we discussed in our blog post on May 31, 2013, “Status Does Matter: Observation v. Admission”, there is a big problem that many Medicare recipients have been facing: patients are footing the bill. The problem is that patients are footing the bill for rehabilitation services in a skilled nursing facility when they are under the impression that these services are covered by Medicare. At the heart of the problem is that the hospital never actually admitted the patient, and coded them with a status of “under observation.”

The story usually goes like this: After being hospitalized for several days (usually three or four) a patient is then transferred to a nursing home for rehabilitation for the next three months.

After the patient receives the rehabilitation and is released from the skilled nursing facility, he or she then receives a bill for thousands of dollars for the rehabilitation—all the while the patient was under the impression that Medicare would cover 100% of the cost of the rehabilitation and a percentage of the cost of the rehabilitation for the next 80 days.

However, under Medicare rules, the patient must have been admitted to the hospital for at least three days before Medicare will cover the cost of rehabilitation in a skilled nursing facility (up to 100 days).

In response to this major issue, President Obama signed into law the Notice of Observation Treatment and Implication for Care Eligibility Act or the NOTICE Act, which will require hospitals to tell Medicare beneficiaries of their outpatient status within 36 hours, or, if sooner, upon discharge.

Although New York law provides similar notice requirements, the new statute is a federal mandate that will help patients who transition from a hospital to a nursing home and want to ensure that Medicare will cover some or all of the costs associated. Please contact us with questions or comments.