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IMAGINE this: You’re 68 years old. You were recently hospitalized due to an urgent condition. After three days you were discharged to a nursing facility for a few weeks of therapy and recovery. Now you’re on the mend and your mind is eased by the knowledge that your hospital stay, medications and nursing home stint are all covered by Medicare.


Not always, to the surprise of many Medicare beneficiaries. You can be stuck with huge bills that result from an important distinction under current law.

Medicare currently requires that patients have at least three consecutive days of “inpatient status” in the hospital to qualify for recovery time in a skilled-nursing facility.

Yet some patients are unknowingly kept in the hospital under a different category called “observation status.” When this happens their admission is not covered by Medicare. Also, while hospitalized they can be subject to multiple co-payments for various medications, procedures and tests.

Patients can spend several nights under observation status, often in the same wards as inpatients. They can receive medical and nursing services, tests, medications and food. Their care is often indistinguishable from inpatient care.

Such practices undermine the original purpose of observation status: to assess, usually within 24 hours, whether admission is required. Unfortunately, hospitals have increasingly used this classification for longer periods, sometimes even exceeding three days.

This increase appeared to be due to Medicare regulations that made it harder for hospitals to get reimbursed for inpatients. The Centers for Medicare & Medicaid Services then attempted to address these frustrations with a new set of rules enacted in August. They allow a doctor to admit a patient under inpatient status if there is a reasonable expectation a stay of “two midnights” or longer will be required.

But problems persist. After an internal review, hospitals can now reclassify a patient from inpatient to outpatient within one year of the visit — a benefit to the hospital but not the unsuspecting patient, who could then face large bills.

Also, time spent under observation status still does not count toward eligibility at a skilled-nursing facility. Even if the patient is switched to inpatient status, the hospital cannot retroactively count the observation time toward the three-day requirement.

The Office of the Inspector General of the U.S. Department of Health and Human Services highlighted the need to ensure that all Medicare beneficiaries with similar post-hospital care needs have the same access to services at skilled-nursing facilities.

The Seattle/King County Advisory Council for Aging & Disability Services therefore supports the Improving Access to Medicare Coverage Act of 2013. This bill counts the entire time spent in the hospital under outpatient observation status toward meeting the three-day inpatient status necessary for coverage at skilled-nursing facilities.

This bill is supported by a broad spectrum of national advocacy organizations, as well as local groups such as the Bellevue Network on Aging and the Kirkland Senior Council.

In the meantime, Medicare beneficiaries should ask the hospital for documentation of their status. In rare cases, patients have been able to use Medicare appeals processes to change their status designation. The Center for Medicare Advocacy offers some guidance on this, although it was published before the August rule changes.

As it stands, the current law imposes great financial burdens on Medicare beneficiaries kept in a hospital under observation status. Patients are often unaware that such an exception exists, and that they could be liable for the full cost of any skilled-nursing facility to which they are discharged.

In addition, the facility may refuse to admit a patient in need of treatment who fails to meet the three-day inpatient requirement if they can’t pay with other non-Medicare funds.

As the nation moves to a system of comprehensive health insurance coverage under the Affordable Care Act, it’s important to keep up the momentum and improve all aspects of health-care delivery in the United States. This is another important step in that direction.

Tony Provine is chairman of the Seattle/King County Advisory Council for Aging & Disability Services.