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Medicare’s Perverse Incentive Against Seniors

Stanley Feld M.D.,FACP,MACE

It is all about money. It is about the government spending less, the hospital collecting more and the patients getting stuck with the bill.

Government officials realize that Medicare costs are unsustainable. CMS creates rules and regulations to expose Medicare to less liability.

Unfortunately the unintended consequence is that CMS exposes Medicare patients to more liability in the process.

Less than 20% of seniors are sick enough at any point in time to require hospitalization.

In an attempt to save money, a distinction has been made between a hospitalized patient and patients in the hospital under observation.

This system has been a disadvantage to many Medicare patients.

It has helped the government slightly in reducing costs. It has helped the profitability of the hospitals greatly.

Seniors are not aware of these perverse incentives until they get stuck with the out of pocket costs of being admitted for observation.

The government and the courts have ignored seniors’ protests.

 What are the issues?

Under the rules, Medicare pays the entire bill for the first 20 days in an approved skilled nursing facility (nursing home) for rehab or other care if the patient needs it.

Seniors must spend at least three full days as hospital admitted patients in order to qualify for the approval.

 If a patient was admitted under observation, for all or part of two midnights, he or she would be responsible for the entire cost of rehabilitation. The government has agreed to pay for rehab for hospitalized patients because its daily cost of skilled nursing care is less than the daily hospital costs.

“The federal Centers for Medicare and Medicaid Services tried to clarify this confusing situation in the spring of 2013 with a policy popularly known as the “two-midnight rule.”

When a physician expects a patient to stay in the hospital for more than two midnights that person is admitted to the hospital as an inpatient hospitalization.

The patient’s care is covered under Medicare Part A, which pays for inpatient hospitalizations.

If a physician expects that the patient will stay less than two midnights, the physicians are forced by the hospital to admit the patient as an outpatient.

As an outpatient only Medicare Part B pays for hospital outpatient services to the hospital and physicians.

The hospital makes more money from outpatient services than it does from inpatient services. All procedures are billed as separate entities rather than the hospital receiving a bundled fee for the disease being treated.

Hospitals have figured out how to stretch the outpatient admissions days to three days. Patients are admitted for observation one minute past midnight.

Under Part B, they’re billed separately for every procedure and visit and drug, and the co-pays can mount until patients owe hundreds or thousands of dollars — which they may only discover upon receiving the bills.

Medicare Part F pays the deductibles. However many seniors cannot afford Medicare Part F.

“People are shocked when they receive the bill. Nobody is required to tell them they’re outpatients.”

Those patients who have been outpatient admissions do not qualify for the rehab benefits. Patients can be responsible for many thousands of dollars for the first 20 days of rehab (nursing home) services

The Medigap supplemental policy (Medicare Part F) does not pay the out-of-pocket costs of services that Medicare Part A does not cover. Since Medicare Part A does not cover outpatient admissions the patient is stuck with the bill.

Over the past several years, hospitals throughout the country have increasingly classified Medicare beneficiaries as observation patients instead of admitting them, according to researchers at Brown University, who recently published a nationwide analysis of Medicare claims in the journal Health Affairs.

 The results showed that in just three years, 2007 through 2009, the ratio of Medicare observation patients to those admitted as inpatients rose by 34 percent.

Medicare tells hospitals that the decision to admit or discharge a patient who is under observation can most often be made in less than 24 hours.

 "In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours," says the Medicare Benefit Policy Manual (PDF), the agency's coverage bible.

But the Brown University study found that more than 10 percent of patients in observation were kept there for more than 48 hours. And it identified more than 44,800 who were kept in observation for 72 hours or longer in 2009 — an increase of 88 percent since 2007.”

How come?

There are two important reasons.

Outpatient hospitalizations mean increased out of pocket expenses for most patients. Prescription drugs in Outpatient hospitalizations are covered under Part B or Medicare Part D drug benefit plans.

Some Part D drug benefit plans have very high deductibles. This is true of brand drugs. It increases the out of pocket costs of the senior.

The hospital determines whether a patient is classified as an inpatient or placed under observation. In many cases the hospital overrules the patients physician’s judgment.

Hospitals are placing more and more patients under observation to protect themselves against new government policies.

These policies penalize hospitals for unnecessary admissions and frequent readmissions of the same patient. These policies withhold payment for patients re-hospitalized within 30 days. Patients hospitalized under observation are not counted as a readmission.

Hospitals have figured out a way of controlling costs as well as increasing profit.  This hospital action is absolutely understandable. Physicians do not benefit.

Who loses?

The unintended consequence is that the senior patients lose.

The problem is most seniors are not aware of what is going on.

 The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone

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