New Law: 2 Things to Know If You're Hospitalized

A new law that requires hospitals to disclose to Medicare patients that they’re on observation status and not being admitted might prevent some surprises when the bills arrive. But it doesn’t fix what some critics say is the real problem: you can still get stuck paying more if you’re considered to be in observation status, than if you’re admitted.

How much more? A lot. For one woman, observation status after a broken leg led to a $28,000 bill, NBC reported. Another faced a $30,000 bill.

How to protect yourself

If you go to the hospital, it’s important to understand two important financial consequences of being deemed “observation status” instead of being admitted:

1. Being classified as “observation status” keeps Medicare’s more comprehensive hospitalization coverage from kicking in, meaning your share may be more. (Medicare Part B covers outpatient expenses; Part A covers inpatient expenses. In 2014, more than 352,000 outpatients paid more in Part B co-payments than the inpatient deductible would have been for their hospital stay, according to the Center for Medicare Advocacy.)
2. Your days in the hospital will not count toward qualifying for Medicare’s nursing home benefit — which means you may be responsible for nursing home charges if your hospitalization is followed by nursing home care. (Nursing facility rehab services are covered only if the patient receives hospital care as an inpatient for three consecutive days.)

These facts about how observation status works are not new. What is new, however, is that hospitals are now required to tell you when you’re getting observation care and why you’re not being admitted. For years, patients often found out only when they got their bills. But now, you must be notified after you’ve received observation care for 24 hours, and no later than 36 hours.

The NOTICE Act — which stands for Notice of Observation Treatment and Implication for Care Eligibility — was passed on Aug. 6, 2015, but just recently went into effect — on March 8. Its intent was to address years of complaints from patients, health care professionals and members of Congress about observation status.

Observation status is a classification by Medicare for when someone is not well enough to be released from the hospital, but not sick enough to be admitted as an inpatient. It can give doctors more time to figure out what’s wrong.

But despite the positive points, observational status remains a controversial topic, largely because the use of it has spiked sharply in recent years. Some critics assert that federal scrutiny of hospital re-admission rates has incentivized doctors to push Medicare beneficiaries into observation status — with the hope that if a patient is never admitted, his or her return would not be counted against the hospital as a re-admission. While hospitals dispute this, the result — patients not learning until after their hospital or nursing home stay that they owe more than expected  — has added insult to injury.

The NOTICE act now removes some of that surprise sticker shock after the hospital stay. So now, if you learn you’re considered in observation status, you at least know the financial consequences beforehand, versus when it’s too late, and can discuss your treatment options.

As the Medicare.gov website says, you have certain guaranteed rights as a Medicare beneficiary, including the right to learn about all of your treatment choices and participate in treatment decisions. You also can appeal certain decisions about health care payment, coverage of services and prescription drug coverage.