"When hospitals classify people as 'outpatients,' on observation status, rather than as admitted inpatients, those patients cannot obtain Medicare nursing home coverage and may also have hospital bills they would not have if properly considered inpatients," says Judith Stein, executive director of Center for Medicare Advocacy. Medicare will only cover the cost of nursing home care when a patient has been hospitalized as an inpatient for three consecutive days. In these cases, Medicare will foot the entire bill for the first 20 days in an approved facility. Patients who have been classified as outpatients will have to pay the entire tab. In addition, Medicare patients who have been relegated to observation status may be responsible for paying cost sharing and the unreimbursed cost of prescription drugs under Medicare Part B that under inpatient status would have been paid for by Medicare Part A. In June 2012, a study was published in the journal Health Affairs showing that there has been a sharp rise in the number of Medicare patients held in the hospital under observation. This finding was accompanied by a downward shift in patient admissions into the hospital. The Brown University researchers reported that the ratio of patients placed in observation to patients admitted into the hospital increased 34% between 2007 and 2009 and that outpatient observation hospitalizations grew 7% longer, on average, over the study period. For their part, patients can't tell the difference between whether or not they've been admitted into the hospital or are classified as under observation as an outpatient. They lie in the same beds, wear the same gowns, eat the same hospital food, receive the same nursing care and wear the same ID bracelets.
The Brown University researchers, led by Zhanlian Feng, assistant professor of health services, policy and practice, noted that there was a lead up to a shift in Medicare costs to patients and hospitals, most recently through the Affordable Care Act, which includes a provision that penalizes hospitals for high readmission rates. Hospitals are able to avoid readmitting patients and dodge the associated penalty by classifying patients as outpatients, either on their initial or second visit.