I Suppose It's Better Than Death Panels …


Revealing article in Bloomberg online today about the latest way in which elderly patients are getting screwed by the system.

Medicare reviews all admissions and if the patients don’t meet indications for admission, the hospital doesn’t get paid by Medicare. Medicare has also recently implemented a mercenary system called Recovery Audit Contractors (or RAC for short) in which third parties audit hospital charts to see whether Medicare “overpaid” for a patient’s visit. If the auditor finds an “overpayment”, the auditor gets to keep a percentage of that overpayment.  Just as an aside, most states have laws against percentage “fee splitting” such as this since paying someone on a percentage basis creates a conflict of interest that encourages the contractors to do things to enhance their income.

Hospitals have the ability to classify Medicare patients as an “observation” admission during the patients’ stay. “Observation” admissions are apparently paid at a lower rate, but don’t come under as much Medicare scrutiny. Additionally, under Medicare rules, “observation” patients may have to pay a 20% co-payment that wouldn’t be required if they were admitted. Medicare “observation” patients also have to pay full price for any subsequent care that is rendered after they have been discharged. For example, if a Medicare patient needs a nursing home care or physical therapy after a hospital stay, Medicare will pay if the patient has been admitted for three days or longer and will not pay if the patient is classified as an “observation” stay. The Bloomberg article gives an example of one 76 year old patient who was saddled with more than $36,000 in bills based on his “observation” stay for eight days.
Another 90 year old woman was billed more than $11,000 after fracturing her hip and then undergoing five weeks of physical therapy so that she could walk again. Sorry, grandma, you weren’t admitted. You were only “observation.” Pay up.

If a patient is a borderline case, hospitals appear to be leaning toward keeping patients in “observation” status. The number of patients receiving the “observation” designation doubled between 2006 and 2008.

Also note how Medicare is planning to penalize hospitals that re-admit too many patients, which will only increase the number of patients classified as “observation” status.

On one hand, hospitals get paid more for admitting Medicare patients.
On the other hand, hospitals could be accused of false claims and penalized for admitting Medicare patients who don’t meet Medicare’s strict admission criteria. Medicare’s RAC mercenaries will be combing through charts because they have a financial incentive to find patients who have been “inappropriately” classified as “admissions.”

So hospitals play it safe and classify more and more Medicare patients as “observation” status.

Who gets stuck in the middle?

The patients … many of whom worked their lives and paid into a system so that they would have medical care when they reached age 65.

Now they’re finding that they only have “insurance.”


  1. And the observation vs. admission criteria are rather random and no clinician could ever hope to really know them.
    Chest Pain-Observation unless you talk to the hospital where I did residency where it was admission. Who’s right? Who knows. I just mark whatever the clipboard nurse says.
    Seizures-obs, unless they continue, then admission. How do you know if they continued or not when you admit/observe them? I have yet to be able to tell the future, but apparently CMS can,retrospecitively of course.
    Gastroenteritis/Dehydration/ARF-obs, unless they need IVF at 100ml/hr or higher(or the renal failure is bad enough however that may be defined). But if they have stable CHF(making them actually higher risk) and you use a lower rate on your IVF they are observation. Whiskey Tango Foxtrot that one for me.

  2. well i say the problem is the greedy doctor making these people pay out of pocket! that is what i’m supposed to believe, right?

  3. Its basically to the point that just about anyone who is not being admitted for an operation is admitted under obs status. Supposedly the status can be changed later in the hospital stay to full admission. I have no idea how often that is happening, but I imagine it is providing a full time job for numerous clip-board carries at out hospital.

  4. According to the exposes on television I’ve seen someone should be paying more attention to the home healthcare business who are submitting bills to Medicare for items like wheelchairs and walkers that no one ever got. In fact, I’d think it was a no-brainer that one person would need seven wheelchairs in the matter of a few months time…. these practices are just outright theft! So, leave the old people’s hospital charges alone and concentrate on the shady home healthcare companies!

    • FWIW–I know that the RACs are going after DME/HHC vendors quite a bit. The office I worked for had a surprise visit from a RAC for this purpose as we often place DME (proper) orders. What the DME vendors do on the other hand, we don’t know (leave that to the RACs to find out).

      Though the surprise appearance of the RACs at the office was quite scary.

      [Happy ending though, they weren’t auditing our physicians–just DME vendors]/

  5. We admit pt’s to “obs” but then if they stay more than 23 hours they are officially admitted by the PMD after a re-eval. Everyone seems happy.

  6. The next step which will effect ER doctors will be the downgrading of our own services when admissions are deemed “inappropriate” in retrospect…suddenly that level 5 chart is now a level 3 or 4 even though you spent the time and energy on the workup, calling consultants, etc.

  7. I love your blog!!!

    But all these politicians are telling me that Medicare is the best thing since sliced bread, how can this be? (note sarcasm).

  8. Thanks for that (non)-clarification as to what qualifies as obs. I wondered about that when I got my mother’s Mcare bills after she died. Her last couple hospitalizations were obs status. Tried to get clarification from the hospital, but couldn’t get an answer.
    Don’t know if it is true currently or not, but a decade ago when she was admitted on obs status she got billed for all of the meds that were administered in the hospital. That 625 mg of tylenol pre-transfusion was about 10 bucks. If she had known that she was going to be billed for her meds I’m sure she would have taken her own meds. But now I guess that TJC wouldn’t let that happen.

  9. all i can say is medicare better have enough money left to give me the scooter i’m entitled to once i hit retirement age.

  10. The decision to hospitalize is a licensed medical one.

    The determination that a hospitalization was not necessary is another, opposing licensed medical decision.

    It is done by a unlicensed, non-doctor, that decision represents the unauthorized practice of medicine. The contractor or government official making it should be reported to the state licensing board.

    If the denial of payment is done by a licensed doctor, the decision represents unprofessional conduct. The doctor is making a licensed medical decision about a patient he has never met, let alone examined and treated. The doctor should be reported to the state licensing board.

    The patient should file a standardized complaint form against the persons involved, every time payment is denied.

    The excuse, we are denying payment, not commenting on necessity of care, is a frivolous, pretextual, phony argument. It should be the basis of an additional complaint to the insurance commissioner of the state.

  11. And the hospitals that kept those two patients for the extended “observation” stays? They’re SOL because Medicare actually only allows for 72 hours of observation before there is a requirement to either admit or discharge. (AKA, make a committment to a course of treatment.) And if they didn’t tell the patient that everything after that wasn’t covered, they couldn’t bill the patient for it.

    Somebody’s care coordination/case management department wasn’t doing their job.

    • What if they still need to be in the hospital but still don’t meet admission criteria? While that is a rare occurrence, it does happen.

  12. I definitely think they can’t reward the people denying claims. Total conflict of interest.

    These things are so disturbing. And now more and more people are realizing how much the new HC bill is going to hurt them.

    I really do not understand how a woman in the hospital for 5 weeks is not considered admitted. It’s like one big game and providers are constantly having to look for ways to out smart mdcr, etc.

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