Hospitalists Urge Congress to Reconsider Medicare’s “Observation Status” Rules


You have to make a difficult decision, to try to help the family. You’re trying to provide good care, but on the other hand, there are rules and regulations and bylaws you work under. They don’t align that well, in this case.

—Karim Godamunne, MD, MBA, SFHM

Hospitalists are pushing hard for a change to a Medicare rule requiring beneficiaries to accumulate at least three consecutive days of inpatient treatment at a hospital (not counting day of discharge) before it will cover care in a skilled nursing facility (SNF).

The issue was one of the talking points during last month’s Hospitalists on the Hill, SHM’s annual daylong advocacy campaign that this year coincided with the annual meeting in the nation’s capital. The issue gained attention from hospitalists and others in recent years, in part because of penalties hospitals face for readmissions—and also in part because hospitalists increasingly are providing care at SNFs and other post-acute-care facilities.

The spotlight is brighter now because a group of legislators is trying to identify Medicare beneficiaries previously given “observation status” as inpatients. The Improving Access to Medicare Coverage Act (H.R. 1179 and S. 569) also would establish a 90-day appeal period for those who have been denied the benefit.

SHM senior vice president Joe Miller says hospitalists used HM13 and the Hospitalists on the Hill advocacy day to discuss the issues and the proposed legislation with members of Congress, their staffs, and federal officials. He urges members to continue lobbying for changes. Although the topic might not have the resonance and impact of a fix to the sustainable growth rate (SGR), Miller says, “anybody that deals with admitting or discharging a patient will recognize the importance of this issue.”

The issue, according to Toby Edelman, a senior policy attorney for the Center for Medicare Advocacy in Washington, D.C, is that Medicare mandates that its program enrollees have at least three days of inpatient treatment before it will pay for SNF care. Medicare also covers the costs of post-acute care in other settings but does not require three days of inpatient treatment before doing so. The construct can be confusing to patients who spend time in a hospital but don’t realize that some or all of their stay is spent in “observation status,” meaning none of that time counts toward Medicare’s three-day threshold for reimbursement.

“Most people can’t believe you could be in a hospital bed for a week and then be told as you leave, ‘By the way, bring your checkbook to the nursing home because you weren’t an inpatient here and so now Medicare won’t pay for your stay in the nursing home,’” Edelman says. “This has been an issue for us for quite a while because the consequence for beneficiaries of being in observation is that people have to pay out of pocket for their nursing home care, and that cost is typically hundreds of dollars a day.”

The particular dilemma for hospitalists is managing transitions of care. Hospitalist Karim Godamunne, MD, MBA, SFHM, chief medical officer of North Fulton Hospital in Roswell, Ga., says hospitalists don’t want financial burdens to dictate care decisions, but they are caught in the middle of decisions that could saddle patients with uncovered costs.

He also worries that the issue will only grow in coming years as baby boomers put more pressure on the health-care system. “We have an aging population,” he adds. “This is not going to go away.”

That is one reason SHM is supporting the Improving Access to Medicare Coverage Act. SHM supported the bill when it was first introduced in March and it has been rapidly gaining cosponsors in recent weeks. This uptick in Congressional interest may be partly a response to the efforts of hospitalists during their time on the Hill. SHM staff and hospitalists are continuing their push now as society officials say hospitalists, who often handle both discharges from the hospital and care provided at SNFs, are in a position to lead discussions on how to sensibly fix the problem.

To that end, a recent SHM letter to the bill’s sponsors casts the issue as one of fiscal responsibility.1 Medicare not covering beneficiaries’ observation days cost patients out-of-pocket money and could cost hospitals in the long run.

“Patients who are admitted with observation status often choose to return home rather than paying out of pocket for a SNF stay,” SHM’s letter reads. “The resultant lack of appropriate post-acute SNF care can result in additional problems such as dehydration, falls, and many other avoidable complications. These complications can not only lead to otherwise preventable readmissions but also increase costs to Medicare for the treatment of conditions that were not present at the time of the original hospital stay.”

Given the debate on observation, Miller says, adopting the bill into law should be a no-brainer. The biggest sticking point likely is the perceived added cost to Medicare. Still, to streamline care and remove an added hurdle to coordinated care, Dr. Godamunne believes the bill should be embraced. He also says that many private insurers look to Medicare decisions to determine their own coverage approaches.

Basically, if Medicare changes its rules, that will carry a lot of weight in the private insurance world.

“This creates a lot of situations for the provider and the family,” Dr. Godamunne says. “You have to make a difficult decision, to try to help the family. You’re trying to provide good care, but on the other hand, there are rules and regulations and bylaws you work under. They don’t align that well, in this case.”

Richard Quinn is a freelance writer in New Jersey.


  1. SHM. Letter to Congress members. SHM website. Available at: http://www.hospitalmedicine.org/AM/Template.cfm?Section=Letters_to_Congress_and_Regulatory_Agencies&Template=/CM/ContentDisplay.cfm&ContentID=33169. Accessed May 3, 2013.

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