Observation Status or Inpatient Admission - Guidance for Physicians

The quality of care should be the same whether the Medicare patient is placed in observation or admitted as an inpatient. It is the difference in cost that is important to the patient.

What observation status may costs the patient

• A $100 annual Part B deductible plus 20% of the Medicare-allowed amount. There is a cap on the total amount a Medicare patient will pay. The total will not exceed the amount of an inpatient deductible ($812 for 2002) for each ambulatory payment classification reimbursed by Medicare.

• Observation status is covered under Medicare. In most instances, observation status payment will be bundled or “packaged” with other services (e.g., clinic, outpatient surgery, or emergency department services). Coverage for observation services is limited to no more than 48 hours, unless the Medicare fiscal intermediary approves an exception.

The quality of care should be the same whether the Medicare patient is placed in observation or admitted as an inpatient. It is the difference in cost that is important to the patient.

What an inpatient admission costs your patient

• The patient will pay $812 (per benefit period) plus 20% of the Medicare-allowed amount. If hospitalized for more than 60 straight days, the amount the patient will pay increases. A benefit period begins the day the patient is admitted to the hospital (inpatient) or skilled nursing facility and ends when the patient has not received either inpatient or skilled care for 60 consecutive days.

• Acute, inpatient care is reimbursed under a diagnosis-related groups (DRGs) system. DRGs are classifications of diagnoses and procedures in which patients demonstrate similar resource consumption and length-of-stay patterns. A payment rate is set for each DRG and the hospital’s Medicare reimbursement for an inpatient stay is based on that rate. Length of stay is not a factor and the hospital receives the same DRG payment whether the patient stays one day or several days.

Observation
Observation status should involve specific goals and plan of care, distinct from the goals and plan of care for an emergency or clinic visit.

To determine if the patient should be admitted as an inpatient or may be safely discharged, he or she should be:

• under the care of a physician during the observation status period,
• actively assessed, and, if necessary,
• treated.

• Chest pain
• Asthma
• Congestive heart failure (CHF)

Inpatient
The decision to order a patient’s admission requires complex medical judgment that can only be made after considering a number of factors including, but not limited to the following considerations.

• Patient’s history
• Current medical needs
• Severity of the signs and symptoms
• Medical predictability of something adverse happening
• Need for diagnostic studies to assist in assessing whether the patient should be admitted
• Availability of diagnostic procedures at the time and location where the patient presents
• Whether an anticipated procedure is considered to be inpatient only. [Medicare’s most current inpatient only procedure listing may be obtained through Health Care Excel’s (HCE) provider hotline (800) 300-8190 or downloaded from our website at www.hce.org.]

Neither observation status nor inpatient
The following would neither be classified as observation nor inpatient.

• Long emergency room visits
• Standing orders for observation following outpatient surgery

The physician best knows the patient and physician documentation is critical not only for explaining why the patient required the level of care given, but for the phyisican and the hospital to be correctly reimbursed for the care provided. For the hospital to qualify for additional Medicare reimbursement for observation of patients with chest pain, asthma, or congestive heart failure, the following physician documentation is required. Note: All of the following must be signed and have the time indicated.

• Admission order, specifying level of care - observation or inpatient (can be done by telephone)
• Admission note
• Discharge note
• Discharge order (may be done by telephone)

Medicare has determined that there are specific services normally performed when assessing patients who have chest pain, asthma, or CHF. Before allowing additional observation reimbursement, Medicare would expect that the following services had been performed. Some of the testing may be performed as part of the emergency or clinic visit before the patient was admitted to observation status.

Chest Pain

• At least two sets of cardiac enzymes, plus
• two sequential electrocardiograms (EKGs)

• Peak expiratory flow rate (PEFR), or
• pulse oximetry

• A chest x-ray, plus
• an electrocardiogram, plus
• pulse oximetry

Observation
The physician does not order an inpatient admission and continued observation isn’t medically necessary, an advanced beneficiary notice of noncoverage (ABN) may be issued by the hospital. This notice informs the Medicare beneficiary that observation is no longer medically necessary and he or she will be financially responsible if he or she chooses to stay. ABNs can be given without a physician’s order.

Inpatient
When the physician has ordered an acute inpatient admission following the observation period and the hospital determines that the admission is not medically necessary, the hospital should issue the Medicare beneficiary a preadmission Hospital-Issued Notice of Noncoverage (HINN). This notice informs the patient that Medicare will not pay for a hospital admission, and he or she will be financially responsible if he or she chooses to stay. The hospital does not need physician concurrence before issuing a HINN.

When a Medicare beneficiary does not require either observation status or inpatient admission yet is unable to return home, it is important that the hospital’s case management or social service department be notified as soon as possible so they can begin to assess alternative placement options.

An acute care admission solely for skilled nursing facility placement or lack of a caregiver at home is not considered appropriate.

Health Care Excel (HCE) has developed an alternative placement process, intended to serve as a hospital’s starting point for creating a more comprehensive, customized alternative placement policy and procedure. HCE’s free “Alternative Placement Process,” which lists alternative placement options and resources, can be obtained by calling (800) 300-8190.