Hospitals are increasingly placing elderly patients on "observation status," which means that even if they spend several days in a hospital they're still considered an outpatient.

Medicare beneficiaries may not know what their patient status is, or what ramifications that status has on the services the program will cover, advocates say.

Medicare rules requiring seniors to receive three days of inpatient treatment prior to paying for follow-up care in a nursing home has left many on the hook for thousands in medical bills.

Lois Whitmore, 71, of Essex Junction, a Medicare beneficiary, said she learned about the problem from a friend whose husband uses a pacemaker.

The friend's husband went to the hospital for complications related to his heart condition, and Whitmore's friend told her, "I hope they don't put him in observation status, because then his rehab stay won't be covered."

"Being somebody who is both inquisitive and an avid researcher, I found myself digging into it," Whitmore said.

What she discovered was that many seniors aren't aware that whether they're an inpatient or outpatient could be the difference between several hundred dollars in medical costs and several thousand if they need rehabilitative services after a hospital stay.


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Members of her church congregation in Essex Junction had turned to the community for help covering unexpected medical bills they received after going from the hospital to a nursing home without hitting the three-day inpatient threshold or because they were never admitted as an inpatient at all.

"People don't understand the consequences of not being admitted, or being on observation status," said Jackie Majoros, Vermont's long-term care ombudsman -- a Legal Aid project aimed at protecting people who live in nursing homes, residential care and assisted living facilities.

"They really think they're an inpatient because the care they're getting is just about the same," she added.

Seniors may go into a skilled nursing facility for rehabilitation following a hospital visit without realizing that Medicare may not cover those services.

Most Medicare beneficiaries have supplemental coverage, either by purchasing more comprehensive Medicare coverage, purchasing wrap coverage through a commercial insurer or because they also qualify for Medicaid.

But their supplemental coverage may not cover the rehab services either.

"They're having to use their savings to pay a hospital bill," Majoros said, money they could otherwise use to stay in their homes and live independently for longer.

There were 117,000 Vermonters on Medicare in 2012, and, due to the state's aging population, that number is growing.

"Because we only hear about problems when people take the proactive step of calling, its hard to tell how often this is happening," said Rachel Selig who works for Legal Aid on Medicare and Medicaid issues.

Hospitals began placing more Medicare patients in observation status because third-party auditors for the Centers for Medicaid and Medicare Services (CMS) were increasingly scrutinizing short hospitals stays as an area of wasteful spending in the program.

If an inpatient admission is later determined by CMS auditors to not be medically necessary, the hospital can lose its Medicare reimbursement for that stay, whereas services hospitals provide to patients in observation status can yield a partial reimbursement even if the stay is later determined not be medically necessary.

Hospital officials in Vermont said they would like to see the policy changed, and said they recognize it can be costly for patients.

"Clinical judgment about patients care comes first with us," said Mike Noble, a spokesman for Fletcher Allen Health Care. "But we also have to be mindful of these rules and we have to have enough reimbursement to be able to keep serving patients."

Even if a doctor thought a patient would benefit from skilled nursing care or other rehabilitative services, if they admitted a patient for three days, and CMS auditors later determine that stay wasn't medically necessary, Medicare wouldn't cover the rehab, said Cheyenne Holland, CFO for Central Vermont Medical Center.

"That's a CMS benefit issue," Holland said.

Last year, CMS issued a new rule meant to give hospitals more guidance around when they should admit a patient or hold them for observation.

The rule directs doctors to admit patients they believe will be in the hospital for two midnights or longer, and those expected to be at the hospital for a shorter stay should be placed in observation status.

In addition, the federal government placed a moratorium on the penalties assessed to hospitals when they classify a patient's stay improperly. The moratorium was recently been extended through March 2015.

Congress is also considering legislation that would treat days under observation as inpatient days for purposes of the three-day limit to qualify for skilled nursing or rehab benefits through Medicare.

The legislation is a good step, Selig said, but it does not address the higher out-of-pocket costs Medicare beneficiaries pay when they're placed on observation status.

Patient status and its implications can be confusing and Majoros said hospitals could be doing more to help Medicare beneficiaries understand their situation.

Hospitals have no legal obligation to tell patients how their hospital stay is being classified, but Noble and Holland said their hospitals try to share that information and its ramifications to the best of their ability.

"We're working very hard to develop a clear plan to communicate with patients about their status while they're here," Noble said, but the CMS rules are in flux and a patient's situation can be very complex because their status can change throughout a visit.

Fletcher Allen distributes to seniors information on patient status and its impact on Medicare benefits that was provided by Legal Aid.

Whitmore said Vermont should consider passing laws similar to ones that exist in New York and Maryland that require hospitals to notify patients about their status during a hospital stay, because, despite hospital efforts, seniors are still winding up with unexpected medical costs after they leave the hospital.