Expert Commentary

Win Whitcomb: Staying ... and Paying


Take a minute to recall your last credit-card statement. On it, say, is the hotel charge from your last out-of-town CME excursion. Below the total charge you were expecting is a separate line-item charge of $75 for a “recreational fee.” Puzzled, you call the hotel. They inform you that because you used the gym and pool—accessed with your room key—they levied the fee. No signs, alerts, or postings to denote such a policy, you innocently expected inclusive use of the facilities in the price of your visit.

Capture the emotion of that moment. It is likely your heart will race and you will think to yourself, “Get me the manager!”

Out of vigilance for penalties and fraud from recovery audit contractor (RAC) investigations, as well attentiveness to unnecessary readmissions, hospitals increasingly are categorizing Medicare patients under observation, rather than inpatient, status. This is to avoid conflict with regulators. Beneficiaries are in the crosshairs because of this designation change and, much in the same way as with our hotel charge, they also experience sticker shock when they get their bills. It is leading to confusion among providers, and consternation within the Medicare recipient community.

Why is this occurring? The dilemma stems from Medicare payments and the key distinction between inpatient coverage (Part A) and outpatient coverage (Parts B and D). When a patient receives their discharge notification—without an “official” inpatient designation—sometimes staying greater than 24 to 48 hours in the ED or in a specially defined observation unit can mean that beneficiary charges are different. This could result in discrete and sometimes jolting copayments and deductibles for drugs and services.

Worse, if beneficiaries require a skilled nursing facility stay (the “three-day stay” inpatient requirement), Medicare will not pay because they never registered “official” hospital time. Patients and caregivers are not prepared for the unexpected bills, and, consequently, tempers are rising.

The rules for Medicare Advantage enrollees, who make up 25% of the program, differ from conventional Medicare. However, commercial plans often shadow traditional fee-for-service in their policies, and, consequently, no exemplar of success in this realm exits.

Hospitals have increased both the number of their observation stays, as well as their hourly lengths (>48 hours). Because the definition of “observation status” is vague, and even the one- to two-day window is inflating, hospitals and hospitalists are often left to navigate without a compass. Again, fear of fraud and penalties places hospitals—and, indirectly, hospitalists, who often make judgments on admission grade—in a precarious position.

The responsibility of hospitals to notify beneficiaries of their status hinges on this murky determination milieu, which might change in real time during the stay and makes for an unsatisfactory standard. Understandably, CMS is attempting to rectify this quandary, taking into account a hospital’s need to clarify its billing and designation practices as well as beneficiaries’ desire to obtain clear guidance on their responsibilities both during and after a stay.

Hospitalists, of course, want direction on coding and an understanding of the impact their decisions will have on patients and subspecialty colleagues. To that end, Patrick Conway, MD, SFHM, chief medical officer for the Centers for Medicare & Medicaid (CMS), offers some enlightenment on this matter:

Q: Is it tenable to keep the current system in place? However, as a fix, require payors and providers to inform beneficiaries of inpatient versus observation status at time zero in a more rigorous, yet-to-be determined manner?

A: Current regulations only require CMS to inform beneficiaries when they are admitted as an inpatient and not when they are an outpatient receiving observation services. There are important implications for coverage for beneficiaries post-hospital stay, coverage of self-administered drugs, and beneficiary coinsurance from this distinction. As a hospitalist, I think it is best to inform the patient of their status, especially if it has the potential to impact beneficiary liability, including coverage of post-acute care. CMS prepared a pamphlet in 2009, “Are You a Hospital Inpatient or Outpatient? If You Have Medicare, Ask!” to educate beneficiaries on this issue. The pamphlet can found at

Q: Due to the nature of how hospital care is changing, are admission decisions potentially becoming too conflicted an endeavor for inpatient caregivers?

A: We want admission decisions to be based on clinical considerations. The decision to admit a patient should be based on the clinical judgment of the primary care, emergency medicine, and/or hospital medicine clinician.

Q: Before the U.S. healthcare system matures to a more integrated model with internalized risk, can you envision any near-term code changes that might simplify the difficulties all parties are facing, in a budget-neutral fashion?

A: CMS is currently investigating options to clarify when it is appropriate to admit the patient as an inpatient versus keeping the patient as an outpatient receiving observation services. We understand that this issue is of concern to hospitals, hospitalists, and patients, and we are considering carefully how to simplify the rules in a way that best meets the needs of patients and providers without increasing costs to the system.

I expect we will hear more from Medicare in the near-term on this matter. Stay tuned.

For more about the patient’s perspective on this issue, please see Brad’s blog:

Dr. Whitcomb is medical director of healthcare quality at Baystate Medical Center in Springfield, Mass. He is a co-founder and past president of SHM. Email him at [email protected].

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