New Medicare law takes aim at loophole

WASHINGTON — In November, after a bad fall, 85-year-old Elizabeth Cannon was taken to a hospital outside Philadelphia for 6½ days of “observation,” followed by nearly five months at a nearby nursing home for rehabilitation and skilled nursing care. The cost: more than $40,000.

The hospital insisted that Cannon had never been formally admitted there as an inpatient, so under federal rules, Medicare would not pay for her nursing home stay. The money would have to come from her pocket.

The experience of Cannon and thousands like her inspired a new Medicare law — in force as of Saturday — that requires hospitals to notify patients that they may incur huge out- of-pocket costs if they stay more than 24 hours without being formally admitted. Because of the Notice Act, passed by Congress last year with broad bipartisan support, patients can expect to start receiving the warnings in January.

Hospitals have been keeping patients like Cannon in limbo — in “observation status” — for fear of being penalized by Medicare for inappropriate admissions.

While under observation, patients can be liable for substantial hospital bills, and Medicare will not pay for subsequent nursing home care unless a person has spent three consecutive days in the hospital as an inpatient.

Time spent under observation does not count toward the three days, even though the patient may spend five or six nights in a hospital bed and receive extensive hospital services, including tests, treatment and medications ordered by a doctor.

Under the new law, the notice must be provided to “each individual who receives observation services as an outpatient” at a hospital for more than 24 hours. Medicare officials estimate that hospitals will have to issue 1.4 million notices a year.

Hospitals can still keep Medicare patients in observation status, and some of the patients will be responsible for nursing home costs.

Twenty-four senators and more than 120 House members are supporting bipartisan legislation to address that concern. Under that bill, time in a hospital under observation would count toward the three-day inpatient stay required for Medicare coverage of nursing home care.