New Medicare Observation Days Legislation

Legislation | March 26, 2019 | by

LeadingAge is pleased that new legislation, H.R. 1682 and S. 753, has been introduced in the U.S. House of Representatives and the Senate to correct the problem of Medicare "observation days". 

Medicare beneficiaries continue to experience outpatient hospital stays "for observation" lasting far longer than the 24 hours called for in Medicare regulations. Although their hospitalizations may last for many days, these beneficiaries are not admitted as inpatients and therefore do not meet the three-day hospital stay requirement for Medicare coverage of any post-acute care they may need upon their release from the hospital. These beneficiaries have to pay out-of-pocket, sometimes thousands of dollars, for the care they need or go without it.

A Department of Health and Human Services Inspector General report in December, 2016 noted that, “Hospitals continue to bill for a large number of long outpatient stays,” and, “An increased number of beneficiaries in outpatient stays pay more and have limited access to SNF services than they would as inpatients." The report found 748,337 claims for long outpatient stays in 2014.

The Improving Access to Medicare Coverage Act, introduced in the House by Rep. Joe Courtney (D-CT) and in the Senate by Sen. Sherrod Brown (D-OH), would solve the observation days problem by requiring all time a Medicare beneficiary spends in a hospital to be counted toward the three-day stay requirement. This would be the simplest and fairest way to resolve the observation days issue, and LeadingAge strongly supports the legislation.

In 2015, Congress attempted to address the observation days issue by passing the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, P.L. 114-39. This law requires hospitals to notify Medicare beneficiaries, both orally and in writing, if they are in outpatient, observation status and how this status may affect their eligibility for Medicare coverage of any post-acute care they may need following their hospitalization. The NOTICE Act does not give Medicare beneficiaries any recourse to adjust their status to inpatient, so they still will be without post-acute care coverage.

The observation days issue is attracting increased attention. A Health Affairs article posted on March 25, 2019 discussed the findings of a recent report by the Department of Health and Human Services' Office of Inspector General (OIG). The article noted that many of the "improper" claims for Medicare coverage of skilled nursing care following a hospitalization resulted from the different ways in eligibility for inpatient hospital status is determined versus the calculation for satisfaction of the three-day stay requirement. The article termed the three-day stay requirement "antiquated" and "onerous" for beneficiaries. The solution recommended in the article:

A different approach is clearly needed—one that addresses the real underlying problem of a two-tiered billing status for hospitalized patients that has little, if anything, to do with actual patient care. Instead of adding more regulatory burden, notification, and monitoring, CMS and Congress should work to fix the underlying problem. First, CMS and Congress, if necessary, should establish the same clock for purposes of the two-midnight rule and three-midnight statute. The time care begins should start this unified clock. Second, Congress should support the recently reintroduced bills in the Senate and House [i.e. S. 753 and H.R. 1628] that would count all midnights in the hospital toward the three-midnight SNF requirement. With status change occurring in almost half of all observation encounters, the clinical distinction between observation and inpatient is blurry at best—yet carries real consequences for Medicare beneficiaries.