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Senate Aging Committee Holds Hearing on Medicare Observation Status

August 1, 2014—The Senate Special Committee on Aging July 30 held a hearing titled “Admitted or Not? The Impact of Medicare Observation Status on Seniors.” The hearing focused on hospital observation stays and the Centers for Medicare and Medicaid Services’ (CMS) “two-midnight” policy, which established new rules regarding how short hospital stays will be paid under Medicare. The hearing is the latest in a series of Congressional efforts to address the controversial policy [see Washington Highlights, May 23].

Testifying before the committee, Yale-New Haven Health System President and Chief Executive Officer and AAMC Council of Teaching Hospitals and Health Systems Chair Marna Borgstrom, M.P.H., urged members to recognize the implications of the two-midnight policy on patients stating, “this policy has done nothing to improve this situation for patients: they are confused; they are negatively impacted financially; and their observation status is all the more divorced from their true clinical needs.”

Borgstrom also emphasized that the two-midnight policy “disregards physicians’ clinical judgment and exacerbates the existing challenges that hospitals face when having to explain to beneficiaries a policy that causes beneficiary confusion.”

Chair Bill Nelson (D- Fla.) opened the hearing explaining the urgency of addressing ongoing questions surrounding hospital observation status, stating, “We are here today to discuss a topic that, I think, impacts more Medicare beneficiaries financially than we realize. I’m speaking about the impact of Medicare observation status. I think most people, after spending the night in a hospital, would say that they have been ‘admitted’ to the hospital — that they are an inpatient of that hospital. This assumption is not always the case — that actually, even if you’re in the hospital, you haven’t been formally admitted. You might be under what’s called ‘observation status’.”

Nelson continued, “Right now we have a situation where beneficiary care — and dollars — are caught up in a debate about the nuances of what is, or isn’t, the right way to use observation stays.”

Ranking Member Susan Collins (R-Maine) echoed those concerns saying, “Many patients on observation stays may not even realize that they have never been admitted as inpatients. They just know that they are in the hospital. If they are admitted later to a skilled nursing facility for follow-up care, they may be shocked to learn that they will be liable for out-of-pocket costs totaling thousands of dollars.”

Several members of the committee expressed confusion surrounding the two-midnight policy, including Sen. Sheldon Whitehouse (D-R.I.), who said, ”I’m not sure I understand the two-midnight rule exactly,” to which Sen. Collins replied, “I’m not sure anyone understands the two- midnight rule exactly.”

Ms. Borgstrom explained the disproportionate impact the two-midnight policy inflicts on academic medical centers and safety-net hospitals saying “hospitals like Yale-New Haven continue to provide the same essential community services — serving the uninsured, maintaining trauma centers, conducting research, and training the next generation of physicians — even if CMS arbitrarily decides that some hospital care should no longer be reimbursed as inpatient care.”

She continued, “Yet when CMS’s two-midnight policy shifts payment for necessary hospital care into the outpatient system, these hospitals experience decreases in their Direct Graduate Medical Education (DGME) payments and lose their payments for Indirect Medical Education (IME) and Disproportionate Share Hospital (DSH) payments. These payments were intended to support the delivery of care to vulnerable patients and those who may require the services unique to teaching hospitals.”

University of Wisconsin School of Medicine and Public Health Division of Hospital Medicine Chief Ann Sheehy, M.D., M.S., reiterated similar concerns regarding the confusion of the two-midnight rule, further suggesting that “any reform must consider the original intent and purpose of observation status so that all Medicare beneficiaries are treated fairly and have both hospital and nursing home coverage, regardless of whether their hospital stay is classified as observation or inpatient.” She added that “no plan to reform observation will be successful without concomitant reform of the RAC (recovery audit contractor) system.”


Len Marquez
Senior Director, Government Relations
Telephone: 202-862-6281


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