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Costly Difference: Impatient vs Observation

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Elliot Raphaelson has penned an article about people who have Medicare going into the hospital and receiving a large bill upon discharge. I will try to be short and concise but this practice by hospitals is scary and I want everyone who has a relative or your self going into a hospital to know about this practice.


An individual who plans a procedure well in advance and stays in a hospital for more than 48 hours may expect that they will be categorized as an "inpatient." But that may not be the case.


Inpatient status implies severe problems requiring highly skilled care. Observation status implies less severe problems and a shorter stay.


For many years now, hospitals have been deeming more and more patients to be in "observation" and they have even used that categorization for patients who stay for a week or longer.


Medicare's standard is "two midnights" to be considered impatient status. However, some hospitals will change the inpatient status to observation upon checkout.


If the patient has Part B and a Medigap policy, most of the expenses will be covered.  If the patient does not have Part B or a Medigap policy that patient will face with significant expenses. Remember, Part B does not cover medications so the patient will be billed for all meds given during the stay. The patient would need Part D to cover some of the prescription drugs.


If the patient is categorized as an inpatient, most if not all of the hospital expenses would be covered.


If a patient has been in the hospital for three or more days you would think they would be classified as inpatient and not only have Medicare pay the hospital bills but they could be admitted to a rehab facility and be covered for 20 days by Medicare.


if the patient is categorized as observation Medicare would not cover any of the rehab expenses because the patient was not classified as inpatient.


So if you, a loved one, or a friend is admitted into a hospital please make sure the hospital confirms the patient will be classified as inpatient and not observation. A lot of money can be saved by doing this.


Here is the article for your perusal. Please read it and be ready to battle to be classified as an inpatient if you have to go into the hospital.





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Had this happen to my wife and I with the birth of our 3rd child.  My insurance company didn't cover the delivery because the hospital listed it as not being inpatient. We came in at 1AM on a Monday. Left at 9PM on a Tuesday. My wife works in the hospital on the floor we were on. Didn't want to stay the extra night only to be hurried out at 7 the next morning. Her Dr was ok with it, we did all the required stuff in the hospital, and went home where she got to sleep in a comfortable bed. 6 weeks later we get a bill from the hospital for over $12k because it was classified as outpatient care due to us not being there the second night. We got charged for every little thing. Took almost 6 months of fighting with the hospital and insurance before it got straightened out. The best part was getting the EOB from the insurance company after the claim was paid. We were charged for everything but the insurance company got everything included in the mother/baby delivery package for $6k and change.

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There are plenty of horror stories out there about poor billing practices by hospitals, but in reference to this specific article Medicare sets the criteria for hospitals to determine whether or not someone is going to be classified under inpatient or observation status. Hospitals would much prefer to have the majority of their patients under inpatient status, but when Medicare performs retro-audits and the auditor feels patients did not meet the strict criteria the hospital has to pay Medicare back the money they received. Medicare is basically the IRS of healthcare... good for catching those that are abusing the system and being fraudulent but a big potential headache for those that are trying to make sure they do everything correctly. 

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