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Inpatient or Outpatient? Medicare's Murky Definitions

Posted on May 06, 2013 by Ailee Slater ()  | Tags: inpatient, medicare, obamacare, observational care, outpatient, readmission rates

Webster's Dictionary defines an inpatient as: "a hospital patient who receives lodging and food as well as treatment." An outpatient, on the other hand, it: "a patient who is not hospitalized overnight but who visits a hospital, clinic, or associated facility for diagnosis or treatment."

If you're staying overnight in hospital, you're an inpatient. If you're out before the night, you're an outpatient. It sounds fairly clear - until we introduce the term "observational care."

Observational care is not rigidly defined. More or less, it means that the patient is physically within the hospital, being monitored by doctor, but not undergoing any type of surgery or treatment for a life-threatening condition. A person under observational care is considered to be an outpatient, even if they spend a night (or more than one night) in hospital.

So, why the concern over the definition of inpatients, outpatients and observational care? Because a patient put under observational care, rather than admitted to the hospital as an inpatient, may have to pay tens of thousands of dollars more. 

The federal insurance plan Medicare, like most insurance plans, asks beneficiaries to pay a higher percentage of their medical costs for outpatient care. If a 74 year old woman named Mrs. Edna Teasedale comes to the hospital with chest pain, and doctors keep her in the hospital for four days under observational care, she is no longer eligible for follow-up nursing services. Medicare will only pay the nursing home expenses of a beneficiary who has spent three consecutive days as an inpatient; because Edna was classified as being under observation, she was technically an outpatient for her entire stay in hospital, and will be responsible for the full cost of follow-up nursing home care.

This Medicare rule regarding observational care has had a huge effect on some seniors. In 2010, Kaiser News with the Wall Street Journal reported the stories of myriad seniors who had stayed in the hospital under observation; however, this designation was made without their knowledge - as far as they and their family were aware, the patients had been formally admitted to the hospital as inpatients. One woman spent six days in the hospital after breaking four ribs; while in hospital, she was visited daily by doctors and nurses, given medication and hooked up to an oxygen machine. Neither she nor her husband was told that she had been classified as an outpatient under observation. After being discharged, the patient spent three weeks recovering in a nursing home. Then, the bill came - $10,597.60 was owed to the nursing care facility, and Medicare would not pay for a cent.

Why would a hospital put a patient under observation for six days, rather than just admitting that person to the hospital as an inpatient? To start, in 2008, Medicare redefined the criteria that doctors are supposed to use when deciding if a senior is an outpatient rather than an inpatient. These changes increased the number of people who are defined by Medicare as under observation. Also, Medicare does not require that a patient be told he has been put under observation; unless his status changes from inpatient to outpatient, he could spend a week in hospital and never know that he hasn't technically been admitted.

Another reason for the increased use of observational care is that hospitals may be fined for inappropriate payments if a bill is sent to Medicare, and Medicare decides that a patient was kept in hospital without a medical necessity and therefore should have been classified as an outpatient. In order to avoid the fines, hospitals may prefer to deem a patient as being under observation care rather than being an inpatient. Also, thanks to Obamacare, hospitals can be fined if they are not doing a good job of lowering patient re-admission rates. By putting more patients under observation as outpatients, hospitals can decrease their rates of re-admissions and run less risk of punishment.

Advocates for senior citizens have argued that Medicare beneficiaries are the ultimate losers when hospitals and Medicare use observational care to save money. At the moment, advocacy groups are working with seniors around the country to take cases to court, and hopefully change the policy on outpatients and observational care in order to ensure that seniors are told when they are an outpatient rather than an inpatient; that hospitals do not misuse the term observational care; and that seniors are given adequate coverage for follow-up nursing home care after a stay in the hospital.

In an effort to reduce some of the ambiguity surrounding observational care, Medicare announced this April that when a patient first comes to the hospital, his physician must decide on the spot if the patient will remain in the hospital for two days, or more than two days. If the doctor thinks that patient will stay for just two days, he will be recorded as an outpatient under observational care. If the doctor thinks that the patient will stay for more than two days, he will be given the status of inpatient. With this new policy, Medicare hopes to better classify long-stay patients.

However, advocates for seniors are still not pleased. To begin, Medicare still has no policy that a patient must be told of their inpatient/outpatient status while in hospital. What's more, with the new policy a patient's status cannot be changed - if a senior is initially classified as an outpatient, then stays in the hospital for seven days, doctors cannot reclassify her as an inpatient, and her follow-up nursing care will not be covered by Medicare.

Hospitals are likewise unhappy with the recently announced Medicare changes. Because Medicare expects this policy rewrite to result in more inpatients and therefore higher costs to Medicare, Medicare is reducing payments to hospitals by 0.2 percent. However, hospitals argue that there is no evidence the policy change will result in more inpatients, and Medicare is therefore putting a higher financial burden on hospitals without just cause.

The Medicare situation with inpatients, outpatients and observational care is murky, and may not be resolved anytime soon. Unfortunately, when it comes to defining patients, a dictionary is no help at all.

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