A New Law Requires Hospitals to Notify Patients of Outpatient Status

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An 85-year-old woman named Elizabeth Cannon spent six and a half days in a hospital after being injured in a fall. Later, she transferred to a nursing home for five months to receive rehabilitation treatment. Cannon assumed that her hospital stay and nursing home care would be covered by Medicare — the government insurance program that covers up to 100 days in a nursing home as long as the patient spent at least three days in a hospital as an inpatient first.

There was only one problem: Cannon was never admitted to the hospital as an inpatient. Even though she spent almost seven days in a hospital bed, the hospital classified her as an outpatient who was “under observation.” Since Cannon wasn’t technically admitted to the hospital, her nursing home services weren’t eligible for coverage under Medicare. She subsequently received a $40,000 bill.

Nor is Cannon’s case unusual. Over the past few years, hospitals around the country have refused to admit many Medicare patients as inpatients, keeping them as “outpatients under observation” instead.  However, a newly-passed bipartisan law, The Notice Act, closes this loophole and give patients more control over their medical care.

The Notice Act requires all hospitals to inform patients when they are categorized as outpatients and explain what this means for their Medicare coverage. After being notified, patients can then ask their doctors to reclassify them as inpatients. The law goes into effect in hospitals nationwide in January 2017.

Hospitals began the practice of restricting Medicare admissions in response to pressure from Medicare, explains the New York Times. Since care provided as an inpatient is typically much more costly than outpatient care, Medicare encourages hospitals to treat people as outpatients whenever possible, even when they are quite ill. The agency even hires private auditors to review hospital charges and dispute “improper admissions” or excessive bills. The auditing firm then gets a small commission for any discrepancy it finds.

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Unfortunately, hospitals and care providers have been caught in the middle. Doctors cannot discharge patients who are too ill to go home, yet they fear admitting them to the hospital lest Medicare dispute the charge. So the practice of lengthy “outpatient observation” has evolved. As outpatients, these people receive many of the same tests and procedures and nursing care as inpatients, but their Medicare coverage is often far less. Many patients have been caught unaware when, months later, they received a huge medical bill.

The new law doesn’t require doctors to classify Medicare patients as inpatients, but it does give patients more warning about how being classified as an outpatient may impact future medical bills. The theory is that patients can intervene before services are provided, rather than being stuck with an expensive bill.

The Notice Act is designed to minimize surprises for patients, but it may not make a difference for patients who are admitted to a nursing home or assisted living facility after being kept as an outpatient for several days. However, bipartisan legislation is now in the works that may address that issue. Sponsored by a number of Congressional representatives and senators, the proposed bill would count outpatient-observation time spent in a hospital toward the three-day inpatient stay required for Medicare coverage of nursing home care.