A recent article suggested that the use of observation status for a hospitalized veteran was a dishonor to his years of service to our country because observation was going to subject him to higher out of pocket costs. This post created quite a lot of discussion and debate. While I agree with the author and commenters that observation is confusing to all and that there has to be a better way, the premise that observation is costlier is absolutely false. Allow me to present the facts about observation.
As of October 1, 2013, the two-midnight rule became the law of the land for fee-for-service Medicare patients. That means that any patient who requires hospital care past a second midnight must be admitted as an inpatient. Patients who do not require hospital care can remain as outpatients past the second midnight, such as patients who are kept because they do not have a ride home, or there is no one home to care for them, but their care is being provided to them as a courtesy with no expectation of payment by Medicare. These patients, by the way, should be informed they are being kept as a courtesy, so they do not think they are accruing days for nursing home eligibility.
What are the costs of inpatient admission compared to observation? If the patient is admitted as inpatient, they owe a $1,288 deductible, no matter the length of stay. That deductible is only waived if they had been an inpatient within the last 60 days. For the commonly readmitted diagnoses, such as pneumonia and heart failure, there is a 20 percent chance they were recently an inpatient, but it is much lower for most other diagnoses.
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