If you’re moved from the emergency room to a regular hospital bed and you stay overnight, wouldn’t you assume that you’re an inpatient?  Most people would.  But it’s not that simple.  And why does it matter?  You could end up paying thousands of dollars more if you are not officially termed an inpatient.  

Medicare has long made a distinction between being in the hospital under observation or outpatient status on one hand and inpatient status on the other hand. The logic was originally simple: people who needed to be watched for just a few hours more after being treated in the emergency room shouldn’t be considered inpatients.  Medicare pays a fixed rate to hospitals per day to treat a given condition, and it seemed wasteful to make that full daily payment for someone who was simply waiting a few extra hours to be sent home from the emergency room.

So far, so good.

But in 2003, in an attempt to reduce fraudulent charges from hospitals (and thus save taxpayers money), a law was passed that authorized independent auditors to ferret out cases in which patient stays were incorrectly labeled – and billed – as inpatient visits when they should have been termed observation visits.  The auditors get to keep a percentage of any such overcharges they identify, giving them an incentive to be very zealous.

 The rules for what medically qualifies someone to be an inpatient are murky.  To avoid being charged with fraud, many hospitals started to err on the side of caution, calling more and more visits observation stays.  Thus, just from 2007 to 2009, a study of all Medicare patients found, the number of hospital stays labeled “observation” visits increased 34 percent.

Notice the timing:  the Affordable Care Act, which became law in 2010, was not a factor in this increase.

A study of all Medicare patients found that the observation patients as a group were just as sick as, and got the same services as, inpatients with the same diagnoses.  A later investigation by the Office of the Inspector General of the U.S. Department of Health and Human Services found that in one year, Medicare patients had more than 1.5 million hospital visits termed “observation” stays, even though 92% of these involved at least one overnight stay – and often two or three nights. 

 The biggest difference in people whose stays were labeled one way versus the other? Which hospital they were admitted to.  The government analysis showed that some hospitals called fewer than 5 percent of Medicare visits “observation” stays, while other hospitals labeled more than 90 percent of Medicare visits this way.

Next week’s column will explain how having your stay labeled an “observation” visit can cost you.