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Hospital admission or observation? New law requires disclosure so you know the difference

When you go to the hospital and have to stay overnight, you assume you've been admitted to the hospital. But, depending on your health care needs, you may only be "under observation" as an outpatient.

A new law this year requires hospitals to make sure you understand the difference.

Thanks to a complex system of rules and regulations for hospitals, providers, private insurers and Medicare/Medicaid patients, you can be in the hospital for several days - but classified as an "observation" outpatient. Which means you're not officially "admitted."

The rules mandate that hospitals cannot officially "admit" you as an inpatient unless you meet the medical criteria for admission. If, in the doctor's view, you don't meet the medical criteria for admission, but a brief hospital stay is still warranted to monitor your condition - you're placed on "observation status." This can even apply if you're in the hospital for routine joint replacement with private insurance, for example, and are scheduled for discharge after one night. You're in the hospital, but you're not technically admitted.

Here's the catch for Medicare patients: If you require immediate rehab care at a skilled nursing facility and are in the hospital under observation - Medicare will not cover the rehab costs.

Under Medicare, you must have been admitted as an inpatient in the hospital for at least three days (over two mid-nights) before you're covered for rehab care after discharge.

This is a common dilemma for families with loved ones who are elderly. 93-year-old Lilly Collins fell while alone in her home on Thanksgiving day. Medics took her to the Emergency Room at Swedish Hospital's Cherry Hill location in Seattle. From the ER, she was transferred to Swedish's main medical center.

"They took me into a room," said Collins. "They did an X-ray. They did the x-ray in the bed."

Collins had no broken bones and no internal injuries but she was extremely weak. Doctors kept her overnight.

"She was not able to stand up by herself," said Lilly's adult daughter, Lisa Collins. Lisa said she was informed of her mother's observation status after the first night, but it was clear her mother could not be at home alone.

So Lisa frantically searched for a skilled nursing facility, what many still call a nursing home, that could provide rehab care and help Lilly get back on her feet.

She searched for more than a week while her mother remained under observation.

"Nobody would want to take her," said Lisa Collins. "She was as 'observation' and not 'admitted' because they said that she didn't meet the medical criteria."

"If they would have admitted her," Lisa explained, "She would have been able to go to a rehab center, which is what she really needed, and then Medicare and her secondary insurance would have picked it up."

Patient advocates warn: families everywhere risk huge nursing home bills they don't expect.

"I think for the individuals who are affected, it really can be a crisis," said Toby Edelman, Senior Policy Attorney with the Center for Medicare Advocacy in Washington, D.C.

"Families are paying huge amounts of money, often up front. Nursing homes will say they want $10,000 up front for the first month's admission," Edelman said.

Call it an unintended consequence of government cost-cutting.

Hospitals are under pressure to provide quality care, but they get penalized financially by Medicare for excessive inpatient re-admissions. They also get penalized for admitting patients who don't meet the medical criteria.

"If a provider charges Medicare or Medicaid inappropriately, then Medicare or Medicaid doesn't pay at all," explained Mary Kay Clunies-Ross with the Washington State Hospital Association. "So, there's a big penalty."

Translation: If your hospital bills Medicare for inpatient treatment, then auditors later determine you actually received outpatient care, which is less costly, the hospital must give back all the money Medicare paid for your bill.

Even the experts agree, it's extremely complicated.

"Hospitals have to follow the rules," Clunies-Ross stressed.

With her mom's hospital charges growing - Lisa finally followed her instincts and skipped the nursing home plan.

"I said I'm taking my mom home," said Collins.

Friends and family now help Lilly recover at home.

And Lisa waits to see what portion of the outpatient observation hospital bill Medicare will pay.

"I'm thinking the worst. I'm really thinking the worst," Lisa said. "I'm afraid my mom's gonna have a huge bill that she can't afford."

Swedish Hospital tells KOMO News it will not be reimbursed by Medicare for many of the days Lilly Collins spent in observation because - even though Lilly could have been discharged after one night - the hospital knowingly provided continued support while her daughter looked for a nursing home.

Lisa Collins said Swedish did inform her of the "observation status" on the second day. She's just frustrated with the system.

According to Swedish, Medicare patients are generally only billed for their 20 percent share of the charges Medicare approves. Swedish emphasizes- "Whether or not they are admitted is not based on their ability to pay, it is based on their health care needs."

To make sure all patients and their families are aware, a new law this year called the NOTICE Act, requires hospitals to tell you verbally and in writing, within 36 hours of putting you or a loved one on observation status.

But, you don't have to wait for the disclosure. As soon as you get checked into the hospital ask:

  • Am I inpatient or observation?
  • How long are you keeping me?
  • Will I need specialized rehab or skilled nursing care after I'm discharged?

And always have a back-up plan, in case rehab care ends up being on your dime.

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