Why no outrage over Obama forcing Medicare beneficiaries to forgo care or pay thousands?

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President Obama has proclaimed himself the protector of Medicare benefits and warned that a vote for Mitt Romney is a vote to cut such benefits. But he’s been ignoring pleas by Medicare beneficiaries, hospitals, physicians, and various consumer and health care organizations to change a policy that’s been forcing Medicare beneficiaries to forgo needed care if they can’t pay the thousands of dollars that the care costs.

The problem is that a growing number of individuals (1.4 million in 2010) are spending as many as 14 days in a hospital under “observation status” (meaning that they’re considered outpatients instead of as inpatients), deprived of Medicare benefits they’d receive if they were treated as inpatients.

Neither “observation status” nor any comparable term is used in the Medicare law or any regulations implementing the law. That’s one of the reasons why the Center for Medicare Advocacy and the National Senior Citizens Law Center filed a class action lawsuit (Bagnall) last November asking that use of observation status be declared illegal.

It used to be that the treating physician (with hospital oversight) would decide whether an individual needed hospital care or could be treated in a different setting. Now that decision is increasingly being made under standards (described as arbitrary, vague, and difficult to understand and apply) used by Medicare claims reviewers, who have a strong financial incentive to deny claims for inpatient stays (they’re paid only when they save the government money). It’s less expensive for a hospital to deny inpatient status than to appeal a reviewer’s decision.

For all practical purposes, patients in observation status are inpatients. The care they receive is indistinguishable from the care that inpatients receive. Both types of patients may be given beds, medical and nursing care, diagnostic tests, medications, and food. But the financial consequences are markedly different.

Inpatients pay a one-time deductible ($1,156 during 2012) for all hospital services and medications provided during a hospital stay. By contrast, outpatients have to pay 20% of the Medicare-approved amount for each hospital service and the difference (usually significant) between what a hospital charges for medications and what their Medicare prescription drug plan will pay for medications purchased from network providers. Individuals have reported having to pay $18 for one baby aspirin and $71 for one blood pressure pill they can get at their local pharmacy for 16 cents.

Worse, time spent in the hospital as an outpatient does not count toward the three-consecutive-day minimum hospital stay required before Medicare will pay for care in a skilled nursing facility.

Consider what allegedly happened to two of the named plaintiffs in Bagnall:

● Louis Dziadzia had back surgery in a hospital on July 6, 2010 and was sent to a skilled nursing facility for rehabilitation. Because he was given observation status for the days he was hospitalized, he wound up owing $825 for his share of hospital costs and $4,340 for his stay in a skilled nursing facility.

● Martha Leyanna went to the hospital on November 16, 2011 because she was in extreme pain and essentially immobile. She was diagnosed as having an irregular and rapid heart rate (atrial fibrillation) and stayed in the hospital until November 22. She initially was treated as an inpatient, but that status was retroactively changed to outpatient. Because she was treated as an outpatient, she had to pay $2,690 as her share of hospital costs plus $8,070 for her stay in a skilled nursing facility.

Although hospitals are paid more for their services when a Medicare beneficiary is an inpatient, the government encourages hospitals to treat individuals as outpatients (and save the government money):

● By giving a patient observation status, hospitals make sure they’ll be paid at least something for the patient’s stay. They’re not paid anything if they treat an individual as an inpatient and the government says they were wrong to do so.

● Hospitals can’t be penalized under Obamacare for readmitting someone who was treated as an outpatient.

● Hospitals can’t be charged with fraud under the False Claims Act (whose reach was expanded by Obamacare) for improperly billing for inpatient services if they treat an individual as an outpatient.

The Centers for Medicare & Medicaid Services is studying the problem through a demonstration program, but the program is scheduled to last until 2015. In April 2011, bipartisan bills were introduced in the Senate and House to count all the time spent in the hospital toward the three-day hospital stay required before Medicare will pay for care in a skilled nursing facility, but both bills have languished.

This should open the eyes of people gung ho for governmental control of health care. They should realize that even policies adopted with good intentions can have unintended consequences that adversely affect patient care and costs — unintended consequences that the government can be counted on to be slow to correct.

David Gibberman, a lawyer, writes about legal and financial matters for professionals, college students, and the general public.

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