Should MedPac Eliminate Hospital Observation Stays?

Posted on: February 21, 2015

Being admitted to a hospital doesn’t necessarily make you an inpatient. Often, patients are admitted under observation, which causes the following concerns:

  • Observation stays do not count towards the 72-hour inpatient hospital stay required for Medicare to pay for post-hospital care at a nursing home. For seniors, this is a big problem. If they are in the hospital under observation and are subsequently sent to a nursing home, Medicare won’t cover their post-acute care. According to Medicare Payment Advisory Commission (MedPac) staff, in 2012, 1,000 hospital stays ended with a non-covered discharge to a skilled nursing facility.
  • Insurance companies treat observation stays as outpatient care, which could increase out of pocket costs for patients.
  • Observation stays are not covered by Medicare Part A they are only covered by Medicare Part B, which is optional coverage and leaves the patient responsible for 25% of the Medicare costs. The patient will have to pay for each individual hospital service and all medications throughout the observation stay.

Woman in hospital bed looking out window while being transported through a hospital hallway.

Photo by Burger/Phanie / Rex Features ( 1302871w ).

In an effort to address these challenges, MedPac is considering eliminating observation stays. In other words, all hospital stays will be considered inpatient stays. The Hospitals Improvements for Payment (HIP) Act of 2014, introduced in November by Rep. Kevin Brady (R-TX), Chairman of the Ways and Means Subcommittee on Health, proposes categorizing observation stays that extend to overnight stays as Medicare Part A inpatient hospital services which would count towards the 72-hour inpatient stay required for post-acute care coverage.

However, should this be taken a step further by eliminating the 72-hour in-patient stay required for Medicare to cover post-acute care altogether? Rep. Jim McDermott (D-WA) introduced a bill in 2013 that would end the inpatient hospital stay requirement. Under the proposed bill, patients would not need a hospital stay to receive Medicare Part A coverage for care at a skilled nursing facility since skilled nursing facilities now provide the same care and services as hospitals. Instead, a physician or other qualified healthcare professional would certify the patient’s need for skilled care.

In mid-January, MedPac met to finalize recommendations, which will be included in their March 2015 Report to Congress on Medicare payment policy. Hospital short stay policy issues, including ways to reduce payment differences between short inpatient stays and observation stays and revising the SNF 3-day hospital stay requirement for Medicare coverage, were discussed. While MedPac did not make recommendations related to these issues, they hope to draft recommendations at their next meeting in March.

However, MedPAC unanimously approved a recommendation to equalize payments to SNFs and IRFs for certain conditions. Considering the unanimous approval of site-neutral reimbursements, approving the elimination of the 72-hour observation stay should be a logical next step towards recognizing the fact that today’s skilled nursing facilities provide the same services and care as hospitals and patients and their doctors should therefore have the right to choose where they want to be treated.