Sticker Shock When Moving From Hospital to Nursing Home

A growing number of Medicare beneficiaries are spending days in the hospital before being transferred to a nursing home, only to find that Medicare won't pay for the first 20 days of their nursing home stay, as it typically would. The reason, the beneficiaries later learn, is that they had never actually been "admitted" to the hospital, but were only under "observation."

Medicare covers nursing home stays entirely for the first 20 days, but only if the patient was first admitted to a hospital as an inpatient for at least three days. In part due to pressure from Medicare to reduce costly inpatient stays, hospitals are increasingly not admitting patients but rather placing them on observation to determine whether they should be admitted. Although according to Medicare guidelines it should take no more than 24 to 48 hours to make this determination, in reality hospitals can keep patients under observation for days.

The consequence is that if the patient moves to a nursing home after being "released," the patient must pick up the tab for the nursing home stay -- Medicare will pay none of it. The bills can run between $200 and $500 a day. But hospital patients often have no idea that they haven't actually been admitted to the hospital, and Medicare does not require such notification.

"They go upstairs to a bed, they get a band on their wrist, nurses and doctors come to see them, they get treatment and tests, they fill out a meal chart -- and they assume that they have been admitted to the hospital," says Toby Edelman, a senior policy attorney at the Center for Medicare Advocacy.

In any case, there is little that patients who know they have been placed in observation status can do because they haven't been refused benefits. Medicare is still paying for their hospital stay, although on an outpatient basis.

"There's no official appeal," says Edelman. "Medicare has not denied coverage. You're in no man's land."

More and more elderly are finding themselves temporary residents of this no man's land. Medicare claims for observation care rose from 828,000 in 2006 to more than 1.1 million in 2009, according to an article in Kaiser Health News. Over the same period, Medicare claims for observation care that lasted more than 48 hours tripled to 83,183.

In 2013 Rep. Joe Courtney (D-CT) reintroduced a bill that would allow for the time patients spend in the hospital under "observation status" to count toward the requisite three-day hospital stay for Medicare coverage of skilled nursing care. The bill would also let beneficiaries with pending appeals at the time of passage benefit from Medicare's coverage of skilled nursing care. Read more on Rep. Courtney's bill.