Costs

Medicare patients pay a 20% copay for all outpatient services. This includes physician office, clinic, and emergency department visits (not leading to admission), as well as observation visits (not leading to admission). If a patient is observed and discharged in a reasonable time frame (15-24 hours), the copay is reasonable. However, if the patient is in observation for several days, the copay will be higher. This trend is occurring nationally when a patient is admitted to a bed anywhere in the hospital.

Hospitals should observe patients in a dedicated observation unit, where the average length of stay is 15 hours, seldom more than 24 hours, and almost never more than 48 hours (the group causing the recent concerns).

Additionally, emergency physicians cannot simply “admit” observable patients to solve this problem. Most of these patients do not meet medical necessity criteria for inpatient admission, and a denied inpatient stay is very costly to the hospital.

During a 3-year pilot project in six states, the RACs, who receive commissions based on recoupment of overcharges they uncover, forced hospitals and other health care providers to return close to $1 billion in improper payments. The RAC program is now being expanded nationwide and will be examining physician billing and medical necessity decisions soon, as well.

Additional pressure for hospitals and emergency physicians to increase the use of observation status will undoubtedly come from the new health care reform law, which includes penalties for hospitals that have unusually high rates of “preventable” readmissions for certain conditions and diagnoses. Because observation patients have not been admitted officially, they would not count as readmissions.

Medications

In outpatient settings, Medicare does not cover self-administered drugs. Patients may take their own routine, self-administered drugs if indicated. With a 15-hour stay, this is seldom an issue.

Skilled Nursing Facility

Since its inception, Medicare has had a 3-day nursing home rule – if a patient qualifies as an inpatient and spends 3 or more days in the hospital, Medicare will pay the first 30 days in a skilled nursing facility (with the exception of beneficiaries who are enrolled in a Medicare Advantage program who can be directly admitted to SNFs). The 3-day period begins when the inpatient admission is ordered, not when the patient arrives. This would be a problem if a patient spent a prolonged period of time as an observation patient, then was admitted but was not an inpatient for 3 or more days (meaning the time in observation care did not count). These patients would then be ineligible for Medicare coverage for the first 30 days at the SNF and would have to pay out of pocket.