Hidden costs of hospital observation care

There’s little consensus on what observation is exactly — a period of time, a status, a process — but perhaps this much is established: “It is a designation that is rooted in figuring out, ‘Does this patient need to be admitted?’” says Brian Contos of The Advisory Board Company, a consulting firm that advises hospitals on observation. But despite the extra time it buys clinicians to run tests, diagnose and determine the best treatment, observation can come at a price for some patients, who pay more out of pocket.

A look at how observation compares to inpatient care for people with Medicare:

OBSERVATION
(outpatient, covered by Medicare Part B)
INPATIENT
(covered by Medicare Part A)
Patients have an annual deductible of $162 for outpatient services. Patients pay a $1,132 deductible for up to 60 days of care.
Patients generally pay 20 percent of the Medicare-approved amount for hospital services. No copayment is charged for hospital services.
Patients pay 20 percent of doctors’ fees, which are separate from hospital charges. Patients pay 20 percent of doctors’ fees, which are separate from hospital charges.
Medications typically aren’t covered unless administered by IV.  Medications are covered in full.
The patient may have to pay for tests or services not considered “medically reasonable or necessary” by Medicare. X-rays and other tests and services are covered as part of the hospital stay.
Post-hospital skilled nursing home stays aren’t covered. Nursing home stays are covered if admitted to the hospital for at least three days in a row.

Other types of insurance, such as supplemental coverage, long-term care insurance and prescription drug plans, may help with some costs not covered by Medicare.


Comments

I cannot pretend to understand the healthcare system in America. All I know is that I had a small tumor in my throat, which in 2003 was diagnosed as squamous cell carcinoma of the neck. The surgical procedure to remove it went horrifically wrong and has left me completely disabled at a relatively young age. I am, therefore, now covered by medicaid. I have all the same doctors as my husband. Yet, his health costs run over $10K p/annum, plus $440 p/month in insurance premiums. Mine are $0, but much to my dismay are paid for by taxpayers. On the contrary, in 1980 while visiting in Italy, I was hospitalized for 32 days, saving thousands in hotel and food costs, and only paid $750 total for services rendered. There was no waiting in line; I learned to speak Italian fluently; and I met some wonderful people with whom I am still in touch with to this day. Overall, my experience was most memorable for a most memorable low cost. In America, it cost me thousands to become a disabled vegetable. Yet, somehow, my doctor who performed the cancer surgery has a flawless reputation. Thanks to Angie's list, this is about to change.

We do have universal free medical care in this country. It is called the emergency room and public health offices where people go and have tests run and get a limited amount of RX medication. They must return to get more and it is very regulated and paid for by the taxpayer. No other country has so many layers of care, and so few know where to get medical care at a reduced price. However the wheels turn slow and we do not want more of our tax dollars to go to such involved regulated programs. I have been a RN for 24 years and worked in a variety of fields. It is expensive and not very organized or fair for anyone. We do pay the lowest taxes of any country. Europe and Asians pay 50% or more in government health and welfare programs. Some like it and some don't- they come here for the medical care- especially over the age of 65, there are waiting lines- I have heard from those coming here.

So long as someone else is paying the bill be it government or insurance, there is no free market. I'll pay a $25 co-pay to Kroger, you pay for the balance of my food then watch the prices rise.

I'm sure i'm going to be lambasted here, but these are just the facts. A couple of facts that many should consider before forming what seem to be ill-informed and politically charged opinions. The gov't currently pays for - in one form or another - ballpark 70% of all healthcare costs in this country. It is the most heavily subsidized and heavily gov't influenced major industry in the United States. The idea that we have ever had anything approaching a market in US healthcare (or almost anywhere else in the world) is fallacy. The Hospital industry, which makes up nearly half of all healthcare costs, is roughly 85% not-for-profit operated. For better or for worse, the non-profit operators do more to drive up overall costs than for-profit systems. Insurance companies, which take the most heat from politicians and voters, are almost 50% not-for-profit owned (by number of lives covered). Headlines in recent months blasting insurance companies for greedily jacking up rates by double digits in CA & the southwest were aimed at non-profit insurance companies. 30% of all nursing homes are operated by not-for-profits. Doctors make all healthcare decisions in the US. They are heavily influenced by payment structure and hospital administration, but doctors are who practice and prescribe medicine.

We live in a world where "non-profit" (read: tax exempt) hospitals charge $120 for an ice pack. If you have insurance, then you have a negotiator on your side. They get the price of the ice pack down to "only" $80. All of the "losses" from non-payment are not write-offs, rather write-ons -- the next person pays for it. In the world of auto insurance, you pay for a car, car insurance. If you are a risky driver based on age (e.g., teenager) or have had a DUI then your premiums are high. If you are a good driver, you have discounts. When you go to purchase a new car -- its the SAME price for a risky driver and a safe driver. The difference the two will pay is not based by the provider (car dealer), rather the insurance carrier. However, in the US -- EVERYONE pays the high price such as $120 for an ice pack (or "only" $80 if they have insurance)? What a crock!

On the stresstest Jim They rob you with a pen there you could have bought your own walker machine for the test for that probly.

Part of the problem is that no one has any idea what the cost is that they are acrruing. Would anyone go to a car dealer and get a car without knowing what the cost of each option was. The hospitals charges are different depending on which insurance you have.

Well, guess I shouldn't complain then that the hospital bill for my husband's pacemaker was $2,200. That was the 20% left over from what Medicare (Primary) and Blue Cross (FEPBlue) paid their shares. Since my husband does not have Part B, Part A does not cover "outpatient" stays. He was kept overnight for "observation." We were never consulted concerning the financial difference this might make. Don't like surprises!

This is significantly critical information. Some hospitals code what actually IS an inpatient stay as an observation because they are more assured of getting at least some payment, whereas denials by carriers/Medicare of "inpatient" stays are difficult to challenge. Moreover, this is done by some hospitals without advising the patient.

You are delusional if you think Medicare is responsible for the state of our health care system. It is in a sorry state for one reason: it is privatized. I have lived in France and in England for long periods of time with my family and we have extensive personal experience with both those countries medical systems. They are simply better than ours: they deliver the same level of care, at far lower cost per person. You choose your own doctor, anywhere in the country, at any time, and there are no "waiting lines." Most of what we heard about "European" style health care during the last election was false. There is no logical, ethical, or moral reason why 20-30% of our health care dollars should be siphoned off the top by middle-men insurance companies who do nothing other than come between you and your doctor. The retiring CEO of United Health Care took home a payout package of 1.6 BILLION dollars. Where do you think that money came from?

I was charged 7000 dollars for a stress test. Any comments.

"bluelou" is flat out lieing. Where in the medical profession could he work and think the it's been deregulated for the last 20 years?

Yes, the free market is good and regulation is bad. But, is that the lesson taught by the nineteenth century robber barons or is that just ancient history.

Until we demand and obtain a single payor not for profit system we will continue to spend good money after bad The partisanship in this country is shameful as is the immorality of neglecting the bare faced fact of a shrinking middle class, increasing lower and poor and incredible wealth among a few whose greed is palpable

I've been paying for medicare and social security ALL of my adult life, and I expect to use it. Also... whoever said the hospitals order tests to make money ..it's YOUR DOCTOR who orders the tests..the hospital only carries out what your doctor prescribes.

The difference is that the hospital gets paid one flat rate for the admission, no matter how long the pt stays as an "Obs" patient. After 24 hours, we get paid nothing, unless the pt is converted to an in patient. So, the hospital eats a lot of cost. Now me, at 53, I don't give a rip, but the powers that be DO. They PUSH is to get these patients out as soon as safely possible. So my advice is to either push to be an inpatient, or else urge your docs to get you out ASAP. I'm sure the patient gets billed, as of course the insurance companies most likely DO bill you for tests, etc, after that 24 hour period. Remember. The hospital gets a flat fee from medicare or any other private company. Extra costs passed on to you? Yes, but to your insurance companies, NOT the hsopital. Just the truth.. We must ALL protect ourselves and each other against these obscenely inflated costs!

The free market does have a system. 90 days before your 65th birthday you are informed that you have to have Medicare part B. To get this you have to go to the Social Security office and sit there for 4 hours. Then you are told the only way you can get part B is to sign up for Social Security even though you are not eligible for full benefits for another year and a half. This is done so they can ensure they get their $98.. a month. Now you are between a rock and a hard place. Everything is considered pre existing so trying to get ins that would actually cover your medical bills and meds are now few and far between. To add insult to injury Dr's that you have gone to for 12-15 years won't see you now because they no longer take medicare. Some of the Dr's offices will contact you and offer a VIP service. You pay $1500-$2500 a year and they'll file your Medicare claim BUT you are responsible for 20% of the billed amount. I wish I could still be on my medical policy. I was glad to pay it. Unfortunately Dr's who have been "practicing" for a number of years would rather have 600 paying clients than 3000 medicare patients. That leaves you at the bottom of a very full barrel. I would rather have a choice in any Dr I have to go to, not whoever can get the most patients on the books per hour. Toni age 67

@frank. If you had facts to back up your rhetoric, I'd listen. "Shere" lunacy is your thought that your problems center on regulation. The regulation of health care has been dismantled over 20 years. As a professional in the industry, I'd have to say you have it backwards. As you may know Ayn Rand, that free market diva, used her husbands name to get medicare for cancer. In her words, "I couldn't afford that. It could ruin me." No other country in the world takes your house if you get sick.

Inpatient status must meet specific criteria with level of acuity as well as level of treatment for Medicare, Medicaid, and Commercial Carriers. Otherwise the stay may be denied with no reimbursement to the facility. Inpatient stays are now reimbursed by diagnosis with limited payment regardless of costs incurred. Hospitals are hardly making profits with excessive tests and/or treatment ordered by the physician. Observation status has developed over the need to evaluate a patient's illness which may or may not meet inpatient criteria.

This article is not entirely correct. Medicare patients cannot be charged for "medically unnecessary" testing unless they signed a form in advance agreeing to do so. Most hospitals do not ask Medicare patients to do this as an observation patient. For a patient to be an inpatient, they have to meet specific criteria that shows they are "sick enough" Also, a 3 day stay does not guarantee coverage for a nursing home stay. And, for commercial insurances, the insurance company most often dictates what status they will approve for the patient.

Healthcare does not operate well as a market. Pricing is not transparent, insurance company discounts confuse the whole process, networks eliminate choice, and people who are very sick are not in a position to shop for quality or price. So stop calling it a market or expecting it to act like a market. We need so called "socialized medicine." Sorry, Republicans.

Please delineate between original Medicare and Medicare Advantage plans when you give such detailed information, since the info/figures are quite different.

I agree with you Keith, The Republicans can fix the health care system just like they did at the state level in Arizona, deny coverage to transplant patients and take hundreds of thousand of people off public health care. funny how that figures out to save about the same as the tax incentives it gave to business this year. Remember that FREE Market = for PROFIT insurance

Lindsey P. is correct!

Surely you folks don't think there has been a free market in health care at any level for the past 50 or 60 years. And the more the government intervenes, the worse it gets. Health csre costs as a percentage of total economy has gone up primarily because there is a lot more product to buy and we want to buy it. Just as the cost of "automobiles" went up a century ago because cars became available and we wanted to buy them. The cost of specific services has gone down. But in general regulation has taken away competition and made things worse than they need to be. Frank

I don't think we have to guess what the free market would have done since it's been in effect for the rest of the health care market for those under 65 during this time. The result: rising health care costs no one can control, less coverage for more money, and almost 50 million uninsured. Great job free market. In fact, Medicare has one of the lowest overheads (3%) vs. 10-30% for private insurance, and one of the highest levels of satisfaction.

Hi Frank, If you haven't noticed, the so called "free market" of private insurance hasn't exactly done a bang-up job in the past 50 years either. I'll admit that the Medicare system is definitely flawed. But the private health insurance system is equally flawed. I remember when I worked for myself around 2002. I bought a self-employed private PPO plan that started out at $143/month. After two years the cost had risen to $388/month, and I had barely even used it. But I'm sure it's all the Democrats fault. The Republicans have definitely done everything right on health care in the past 50 years.

Frank you mean the way the free market has worked out a system that makes our prescriptions so affordable, right?

Wouldn't it be great if we had not have Medicare the past 50 years and the free market could have worked out a system that works and is affordable. Thank you Lyndon Johnson and Democrats for this turkey. Shere lunacy. Frank, age 66

Recently I was sent home from the emergency room only to be called back by the hospital (a test made showed need for further observation) within twelve hours and was subsequently admitted to the hospital. I dread to think of what my insurance company will be paying for this situation.

At least with observation the patient is aware of the added charges for testing and theoretically can refuse anything that seems unnecessary. With inpatient Medicare, there is a huge cost to society as hospitals make profits by ordering increasing numbers of expensive tests and procedures and aren't held accountable by anyone....

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