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AMERICAN BAR ASSOCIATION

SENIOR LAWYERS DIVISION

COMMISSION ON LAW AND AGING

SECTION OF REAL PROPERTY, TRUST AND ESTATE LAW

REPORT TO THE HOUSE OF DELEGATES

RESOLUTION

RESOLVED, That the American Bar Association urges Congress to enact the Improving Access to Medicare Coverage Act of 2013, (HR 1179)(S 569), or similar legislation that deems an individual receiving outpatient observation care services in a hospital to be an inpatient with respect to satisfying the three-day inpatient hospital stay requirement for Medicare coverage of a post-hospitalization stay in a skilled nursing facility.

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REPORT

  1. Background

“Observation Status” refers to the classification of hospital patients as “outpatients,” even though, like inpatients, observation patients may stay for many days and nights in a hospital bed, receive medical and nursing care, diagnostic tests, treatments, supplies, medication and food within the hospital facility. The result of this is that the patient classified as under observation status is not “admitted” to the hospital, within the meaning of Medicare reimbursement regulations for qualification for Medicare payment for post-hospitalization stay in a skilled nursing facility (SNF). Medicare regulations require that for Medicare post-hospitalization payment for rehabilitation therapies in a SNF, the Medicare qualified person must be discharged to the SNF from inpatient status in a hospital for a period of three days (not counting the day of discharge) prior to discharge to the SNF. According to the Center for Medicare Advocacy, while they are referred to in the Medicare Benefit Policy Manual, neither the Medicare statutes nor the regulations define “Observation Status”, beyond that it is not an inpatient stay.

Hospitals have increasingly used the observation status for their own financial benefit, by reducing the number of patients readmitted to the facility. Medical facilities are penalized for readmissions within a specified period of time, by reduced payments to the medical facilities by Medicare. While this policy was intended to encourage high quality medical care, the actual result is that doctors and hospitals have increased the use of observation status to avoid this penalty. In addition, Medicare won’t pay for hospital inpatient stays if it is later determined by a Medicare audit that the patient could or should have been kept in observation status. Effective for admissions on or after October 1, 2013, there has been a change in the Medicare rules that will allow the hospital to bill for those costs under Part B. But it is unclear how that rule will be implemented and there is a controversial one year time limit.

Kaiser Health News has noted that the number of Medicare Patients receiving observation care jumped 69 percent in only five years, to 1.6 million in 2011, according to the most recent federal data. Even though Medicare recommends that hospitals decide within 24 to 48 hours whether to admit a patient, observation stays exceeding 24 hours have nearly doubled to 744,748. [1]

In a recent report, AARP’s Public Policy Institute found that between 2001 and 2009, Medicare claims for observation status grew by more than 100 percent, with the greatest increase occurring in cases not leading to an inpatient admission. The duration of observation status visits has also increased dramatically. Observation stays lasting 48 hours or longer were the least common in number, but had the greatest increase – almost 250 percent for patients never admitted, and more than 100 percent for observation status followed by inpatient admission. Comparable rates of growth in the use of observation status for Medicare beneficiaries over and under age 65 suggest that observation status is increasing across the age spectrum. [2]

When patients are kept in observation status, they are deemed “outpatients” by Medicare so they are not covered under Medicare Part A, which covers hospital charges above the annual deductible amount. Instead, the Medicare payments are billed under Medicare Part B, which covers doctors’ services and outpatient care, but which requires the patient to pay 20 percent of the costs, after the annual deductible is met, with no cap on the total fees due and payable from the patient. Also drugs given in the hospital to “outpatients” are not covered under Part A, so patients are responsible for all costs and co-pays to the extent not covered by their Part D plan, if they have one.

When the Medicare patient is discharged to a SNF for rehabilitation after a 3-day inpatient hospital stay, Medicare pays all or a part of the costs for up to 100 days. However, if patients enter the SNF after a three-day observation care hospital stay, or a combination of observation care and inpatient care where the inpatient status is fewer than three days, they are responsible for the SNF costs without Medicare payment. And because the costs are not considered Medicare eligible, costs will not be paid by a Medigap supplemental policy either. This requirement will be waived by only some Medicare Advantage policies. According to the Kaiser Foundation, in 2012, more than 617,000 stays did not qualify for payment of the SNF costs because the patient was kept in an observation status for some or all of the time in the hospital, thus denying the patient the required three-day inpatient stay requirement of Medicare.

  1. The Results of this Policy

By using observation status, the hospitals have protected themselves from unreimbursed expenses from Medicare where CMS has denied the characterization of inpatient status for a Medicare recipient. However, the Medicare patients have been left with significant medical bills because of the extended use of observation status, over multiple days, instead of classifying the Medicare patient as an inpatient.

  1. What do HR 1179 / S 569 do?

HR 1179 / S 569are identical short (one page) bills, succinct and to the point. They amend Section 1861(i) of the Social Security Act, to state that “For purposes of this subsection, an individual receiving outpatient observation services shall be deemed to be an inpatient during such period, and the date such individual ceases receiving such services shall be deemed the hospital discharge date (unless such individual is admitted as a hospital inpatient at the end of such period).”

In essence it simply “counts” the time a Medicare qualified patient is in observation status as time toward the required three-day hospital inpatient stay in order to receive Medicare payment for SNF rehabilitation services upon discharge to the SNF after a three-day hospital stay.

  1. Need for ABA Action

The ABA is in a unique position as a major spokesperson for the legal profession in the United States. Because of this unique position to assist in the passage of legislation which supports seniors who are under the Medicare health care system, and the ABA’s understanding of health care law, Social Security, Medicare and related programs, the ABA should support this legislation. Previous ABA policies on Medicare support reforms in the Medicare claims adjudication process to assure that Medicare beneficiaries are afforded due process throughout all levels of the claims and appeals process. This proposed resolution is consistent with and does not overlap or duplicate existing ABA policy. The ABA has always stood on the side of ensuring just laws that support an individual’s right to Social Security and Medicare benefits, and should continue to actively perform this role.

  1. Conclusion

HR 1179 /S 569afford the opportunity for fairness towards seniors reliant upon Medicare for their health care insurance services in payment of hospital related medical services when the individual is required to stay overnight in the hospital, regardless of whether that individual is classified as in inpatient or observation status. By reclassification of observation status as qualifying for the three-day inpatient requirement for Medicare payment for SNF rehabilitative services, this bill improves the ability of patients to pay for medical services. This does not impact the hospitals’ Medicare reimbursement with regard to whether or not the patient is properly in inpatient, outpatient or observation status. Accordingly, the Senior Lawyers Division and the Commission on Law and Aging requests the House of Delegates to adopt the resolution.

Respectfully submitted,

Seth Rosner, Chair

ABA Senior Lawyers Division

February, 2014

GENERAL INFORMATION FORM

Submitting Entity: ABA Senior Lawyers Division

Submitted By: Seth Rosner, Chair

  1. Summary of Resolution(s)

This resolution calls for support of the Improving Access to Medicare Coverage Act of 2013 – (HR 1179) (S 569), or similar legislation. This legislation would amend the Medicare Act’s definition of “post-hospital extended care services” to clarify that time spent in the hospital in observation status counts toward the three–day prior hospital stay prerequisite for Medicare Skilled Nursing Facility coverage. This will help thousands of older and disabled people who spend days in the hospital, but who are not categorized by the hospital as inpatients, and who therefore don’t meet the three-day prior hospital care prerequisite.

  1. Approval by Submitting Entity:

Approved by vote of the Senior Lawyers Division Council on November 19, 2013.

Approved by vote of the Commission on Law and Aging on November 18, 2013.

  1. Has this or a similar resolution been submitted to the House or Board Previously?

No

  1. What existing Association Policies are relevant to this Resolution and how would they be affected by its adoption?

None. ABA policies on Medicare address Medicare claims adjudication process to assure that Medicare beneficiaries are afforded due process throughout all levels of the claims and appeals process. This resolution does not impact those policies.

  1. If this is a late report, what urgency exists which requires action at this meeting of the House? Not applicable
  1. Status of Legislation. (if applicable):

Pending (HR 1179) (S 569)

  1. Brief explanation regarding plans for implementation of the policy, if adopted by the House of Delegates

Will lobby for passage of the legislation in collaboration with ABA Governmental Affairs.

  1. Cost to the Association (both direct and indirect costs): None
  1. Disclosure of Interest (if applicable) No conflicting interests
  1. Referrals. This resolution is being referred to:

Standing Committee on the Delivery of Legal Services

Standing Committee on Governmental Affairs

Standing Committee on Legal Aid and Indigent Defendants

Standing Committee on Pro Bono and Public Service

Special Committee on Bioethics and the Law

Commission on Disability Rights

Commission on Domestic and Sexual Violence

Commission on Homelessness and Poverty

Commission on Hispanic Legal rights and Responsibilities

Government and Public Sector Lawyers Division

Section of Administrative Law and Regulatory Practice

Section of Dispute Resolution

Section of Family Law

Section of Individual rights and Responsibilities

The Judicial Division

Section of Litigation

Section of Real Property, Probate and Trust law

Section of Science and Technology Law

Senior Lawyers Division

Section of State and Local Government Law

Section of Tort, Trial and Insurance Practice

Young Lawyers Division

National Legal Aid & Defender Association

  1. Contact Name and Address Information (Prior to the meeting)

Seth Rosner

26 Saratoga Circle

Saratoga Springs, NY 12866-1028

518/587-4802

518/587-4802 (fax)

  1. Contact Name and Address Information (Who will present the report to the House?)

Lizabeth A. Moody

Stetson University College of Law

1401 61st Street South

Gulfport, FL 33707

(727) 562-7848

EXECUTIVE SUMMARY

  1. Summary of the Resolution

This resolution calls for support of the Improving Access to Medicare Coverage Act of 2013 – (HR 1179) (S 569), or similar legislation. This legislation would amend the Medicare Act’s definition of “post-hospital extended care services” to clarify that time spent in the hospital in “observation status” counts toward the three–day prior hospital stay prerequisite for Medicare Skilled Nursing Facility coverage. This will help thousands of older and disabled people who spend days in the hospital, but who are not categorized by the hospital as inpatients for at least three days of their stay, and who therefore don’t meet the three-day prior hospital care prerequisite.

  1. Summary of the Issue the Resolution Addresses

Coverage under Medicare of Skilled Nursing Services after a hospitalization requires that the hospitalization lasted a minimum of three days. Currently, when a patient in the hospital is deemed on “observation status” rather than in “in-patient status,” the time is not counted towards the three days, even though from the patient’s perspective, the patient is in a hospital bed and receiving the same services as an in-patient. Because of various incentives and penalties faced by hospitals for incorrectly classifying a patient or for readmissions within 30 days, the use of the observation status has soared. The financial consequences to patients can be devastating and unexpected.

  1. Please Explain How the Proposed Policy Position will address the issue

The legislation supported by this resolution remedies a key component of this problem by counting observation status days as in-patient days for the purposes of meeting the three-day prerequisite for Medicare coverage of Skilled Nursing Services after discharge from a hospital. This will help thousands of older and disabled people who spend days in the hospital, but who are not categorized by the hospital as in in-patient, and who therefore don’t meet the three-day prior hospital care prerequisite.

  1. Summary of Minority Views

None to date.

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[1]Susan Jaffe, “HHS Inspector General Scrutinizes Medicare Observation Care Policy,” Kaiser Health News, July 30, 2013. Accessed on 11/18/13 at:

[2] Lan Zhao, et al, Rapid Growth in Medicare Hospital Observation Services: What’s Going On? AARP Public Policy Institute, September, 2013