Patient, beware of your Medicare hospital bill – you could be in for some unpleasant surprises

On the surface, it seems so simple. You get treatment in a hospital, Medicare gets the bill, and the hospital gets paid. But the rules for Medicare billing and payment are anything but straightforward.

In order for Medicare to pay for an inpatient stay, the stay must last for at least two days (each day begins at midnight).  If a stay is shorter, Medicare will consider the care to involve "observation," a type of outpatient service for which the hospital's reimbursement is much lower.  The patient may be stuck owing the difference.

When a patient is admitted from a hospital's emergency department, a physician must justify the admission based on the patient's history, co-morbidities, signs and symptoms, and risk of an adverse event. If a patient fails to meet the criteria but is too ill to be sent home, he or she may be placed in a special observation unit where a nurse practitioner can observe progress under a physician's supervision. Diagnostic studies can be scheduled for after discharge from the unit rather than during the hospitalization, when they may be more expensive.

However, in hospitals that do not have an observation unit, admitted patients and observation patients may be co-mingled on the same unit. The result is that observation patients may stay in the hospital for longer than necessary, while the hospital receives reimbursement at the lower, outpatient, rate.  Once again, the patient may be billed for the difference.

If the patient needs nursing home care after discharge, further complications may arise. In order to pay for care in a skilled nursing facility, Medicare requires that a patient spend at least three days before admission as a hospital inpatient. However, if the hospital stay is coded as "observation," the patient will not meet that requirement. Medicare may then refuse to cover the skilled nursing facility care, and the patient would be left owing the entire bill.

Rules such as theses have fostered the development of a new category of workers in hospitals whose role is to scrutinize coding to maximize Medicare reimbursement. They may work throughout the hospital. In the emergency department, they make sure that admissions are justified and properly documented. On inpatient services, they help physicians to properly document care. In medical records departments, they review the discharge diagnoses assigned to patients.

This complexity is not needed. The system could be simplified if each patient could be placed in the appropriate level of care without financial consequences for the hospital. This would significantly reduce the incentive for hospitals to "game the system."

Clearly, reimbursement rules are necessary to make sure that Medicare does not pay for care that is not truly needed. However, those rules should not discourage hospitals from making care decisions based solely on each patient's actual needs. And they should not penalize patients for inappropriate care decisions over which they have no control.

Medicare policies on hospital reimbursement that have these effects need to be reconsidered and revised. In the meantime, patient beware.

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