Quick Review of Observation Status
In order to be eligible for benefits under Medicare Part A, a patient must be admitted under inpatient status.  Observation Status, however, is different, and services that a patient receives under Observation Status are covered under Medicare Part B.  This is a real problem for Medicare beneficiaries: a blog post about this topic can be found here.

CMS Proposed Rule Change
The Centers for Medicare and Medicaid Services (CMS) have made a proposed rule change would change the requirement from 3 days to 2 nights (that pass across midnight).  In addition, a physician could override that requirement.

Dramatic Effect of Unintended Consequences
The reality is that this is probably an unintended consequence of CMS’ effort to ensure that hospitals do not admit, and then re-admit patients for the same medical issue.  The CMS is penalizing those hospitals that have exhibited an abnormally high frequency of re-admitted patients under inpatient status.  Therefore, hospitals have the incentive to admit patients under Observation Status.  The proposed rule change is a welcome change.  Some may say it is incomplete.  However, CMS’ monitoring of systematic re-admits by certain hospitals does have a justified rationale, because that increases claims on the Medicare system, which feeds itself back to all other beneficiaries.

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