1. Observation Status, the Improvement Standard and Other Mysteries of Medicare
Estate Planning Council
November 18, 2014

3. The Legal Landscape Medicare Parts A and B
Part A covers inpatient hospital care
Part A covers post-hospital skilled nursing facility (SNF) care if there is a three-day inpatient hospital stay
The “three midnight rule”
Part B covers outpatient services
Part B does not cover SNF care

4. Inpatient or Outpatient Why does it matter?
Inpatients have an initial deductible, then 100% coverage of hospital
Inpatients have all drugs covered while in hospital -- outpatients do not
Outpatients have co-payments on all Part B services
The BIG ONE: outpatient time does not count toward the three-day stay requirement

5. What is going on? More and more people who look like
inpatients are being told that they are really outpatients
Patients are being placed on observation status for longer periods of time
Some inpatients are retroactively reclassified as outpatients
The result: patients do not get SNF coverage even though they have spent more than three nights in the hospital

6. Inpatient? The Great Tautology
The Medicare statute does not define inpatient
The regulations do: a person who has been admitted to a hospital for bed occupancy for purposes of receiving inpatient hospital services.
So an inpatient is an inpatient

7. Inpatient Services? The Medicare Policy Manual says they are:
1. Bed and board.
2. Nursing services and other related services.
3. Use of hospital or CAH facilities.
4. Medical social services.
5. Drugs, biologicals, supplies, appliances, and equipment.
6. Certain other diagnostic or therapeutic services.
7. Medical or surgical services provided by certain interns or residents-in- training.
8. Transportation services, including transport by ambulance.

8. It All Turns on Admission
The Secretary leaves the classification to the discretion of doctors and hospitals by tying it to their determination as to whether formally to admit a beneficiary
So we just have to make sure
the doctor admits the patient
as an inpatient, right?
NOT SO FAST, BUDDY

9. How the Decisions are Really Made
In theory, the determination is made by the admitting doctor alone. The reality, however, is that hospitals and doctors have been strongly pressured by Medicare to classify more and more people in the hospital as outpatient
Medicare also relies on outside corporations' proprietary guidelines to determine whether inpatient admissions are "appropriate." It is these guidelines and Medicare's enforcement of them that determine admissions in reality.

10. You are an Inpatient—For Now
Inpatient admissions can be reversed by hospital Utilization Review (UR) Committees
Supposedly requires doctor to concur, but they are under pressure from hospital
Recovery Audit Contractors – can reclassify hospital stays from Inpatient to Outpatient
If this happens, hospital (traditionally) cannot rebill it as outpatient under Medicare B, so the hospital gets NOTHING
The result – when in doubt, OUTPATIENT

11. Congratulations—You are on Observation Status
“A well-defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and reassessment, that are furnished while a decision is being made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital.”
But they don’t have to tell you!

12. It Shouldn’t Last Very Long
“In the majority of cases, the decision whether to discharge a patient from the hospital following resolution of the reason for the observation care or to admit the patient as an inpatient can be made in less than 48 hours, usually in less than 24 hours. In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours” --Medicare Manual

13. Midnight Madness
Three midnights as an inpatient qualifies the beneficiary for SNF coverage
Two midnights as an inpatient plus one (or two, or three…) nights on observation status—sorry, you lose (Landers v Leavitt)

14. But I Heard They Changed to Two Midnights
CMS is instructing physicians to use a 2-midnight benchmark and order admission for beneficiaries expected to require hospital care crossing at least two midnights
Seems like it should help, but studies of past admissions suggest it may make things worse
DOES NOT CHANGE THE REQUIREMENT OF THREE MIDNIGHTS AS AN INPATIENT FOR SNF COVERAGE
Some relaxation in re-billing rules may help

15. Is Anyone Trying to Fix This?
Bagnall v. Sebelius – Class action challenging the entire “observation status” system – has lost in District Court (2013 WL )
Decision based on Estate of Landers v. Leavitt, 545 F.3d 98, 104 (2d Cir.2008), which says you aren’t an “inpatient” unless formally admitted

16. Any Hope from the Courts?
Bagnall is being appealed, but only on the limited issue of whether Medicare gives adequate notice of “observation status” and an adequate opportunity for review of the decision
Argued
October 22

17. Can’t Congress Do Something?
The Improving Access to Medicare Coverage Act (H.R. 1179) Rep. Joe Courtney (D –CT) plus 110 co-sponsors (bi-partisan)
Would count ALL time in hospital toward the three day requirement for SNF coverage

18. Dad is in the Hospital and Will Need SNF Care? Will it be Covered?
1. Find out his status
2. If its “observation”, try to get it changed.
3. Prepare for Discharge—will home health care work? Medicare should cover
4. Prepare for an appeal on SNF coverage—if he had “3 midnights” not in the ER
5. “Demand bill”
6. Gather records
7. Appeal everything

19. The Improvement Standard
Glenda Jimmo of Bristol, VT is blind and has had her right leg amputated due to complications from diabetes.
She requires a wheelchair and has multiple home health care visits each week for various treatments for her complex condition
Medicare denied coverage for these services, saying she was unlikely to improve

20. Jimmo v. Sebelius
Medicare Contractors (the people who actually make the decisions on claims) have long used the Improvement Standard as a rule of thumb
This standard is not supported by Medicare statute or regulations
Challenged in Jimmo, a nationwide class action filed in 2011 by the Center for Medicare Advocacy

21. The Jimmo Settlement
A nationwide class certified – members can have re-review of claims
Manual revisions – eliminate suggestions of need for “Improvement” – the need for skilled care is determinative
Nationwide educational campaign for contractors, providers and adjudicators

22. Peter Benjamin Litigation Director Community Legal Aid One Monarch Place, Suite 400 Springfield, MA