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AJMC Study Examines Effect of Medicare Rules on Care After Hospital Observation


A study of more than 195,000 Medicare clients who were in the hospital for observation in 2010 found that only a tiny fraction were discharged to a skilled nursing facility, and fewer still had their care covered by Medicare. The findings have implications in light of the two-midnight rule and other policies that may not affect large numbers of beneficiaries, but can have a sizable impact on those who are affected.

AJMC Study Examines Effect of Medicare Rules on Care After Hospital ObservationFOR IMMEDIATE RELEASEMAY 27, 2015

PLAINSBORO, N.J.—Are policies that spell out when Medicare pays for nursing care after a hospital stay triggering financial pain for seniors? That’s what a study published this month in The American Journal of Managed Care set to figure out, and its findings could have implications due to a recent federal rule change.

The study, “Observation Encounters and Subsequent Nursing Facility Stays,” led by Anita A. Vashi, MD, MPH, examined how Medicare policies that distinguish between an “inpatient” hospital stay and an “observation” affected those who might be stuck with a bill for skilled nursing care after leaving the hospital. For some time, Medicare has been clear it will not pay for care at a skilled nursing facility, or SNF, without a three-day inpatient hospital stay

The concern, the authors write, is that some patients may need skilled nursing care after an extended observation; but in light of the policy, “beneficiaries may bear prohibitively high out-of-pocket costs.”

A rise in extended “observation” cases—more than 48 hours—prompted the Centers for Medicare and Medicaid Services (CMS) in 2014 to spell out that inpatient admission was appropriate if the patient’s doctor expected a stay of at least two midnights; hence the so-called “two-midnight” rule. But the three-day admission requirement for SNF payment did not change.

Dr. Vashi and her co-authors analyzed 195,068 beneficiaries who were observed in the hospital in 2010, before the rule change, to find out what happened afterward. Only 1.2%, or 2,319, were discharged to SNFs not covered by Medicare, while 0.6%, or 1,196, were discharged to SNFs covered by Medicare. Those discharged to a non-covered SNF tended to be older than those sent to a covered facility (82.5 years vs. 80.1 years). Those discharged to a covered SNF had more comorbid conditions.

Financial Impact. The 1,196 clients the study sent to SNF with Medicare coverage had an average hospital observation of 35.3 hours, followed by an average SNF stay of 19 days. Their average out-of-pocket costs beyond their Medicare coverage was $1,414.84.

No financial impact analysis was performed for those discharged to a SNF stay that was not covered by Medicare. Of these 2,219 beneficiaries, 1,030 of them had full or partial Medicaid coverage. Of the remaining 1,289 (0.7% of the overall sample), the average length of hospital observation was 34.1 hours, and the average SNF stay was 44.1 days. Based on an average daily cost of $205 for 2010, these clients may have been liable for up to $9,040.50 for their care, the authors estimated.

Implications. The authors found that while comparatively few beneficiaries are affected by Medicare’s limits on SNF payments, those that are may face high out-of-pocket costs, so the two-midnight rule may reduce how many patients are affected. The authors noted a quarter of the patients discharged to a non-Medicare covered SNF stay would have potentially been impacted by the two-midnight rule.

“Future research should more rigorously assess the receiving of observation services by Medicare beneficiaries, including their clinical needs and the financial ramifications of those needs,” they wrote. The full article can be accessed here.

About the Journals

The American Journal of Managed Care celebrates its 20th year in 2015 as the leading peer-reviewed journal dedicated to issues in managed care. Other titles in the franchise include The American Journal of Pharmacy Benefits, which provides pharmacy and formulary decision-makers with information to improve the efficiency and health outcomes in managing pharmaceutical care, and The American Journal of Accountable Care, which publishes research and commentary on new healthcare delivery models facilitated by the 2010 Affordable Care Act. AJMC’s news publications, the Evidence-Based series, bring together stakeholder views from payers, providers, policymakers and pharmaceutical leaders in oncology and diabetes management. To order reprints of articles appearing in AJMC publications, please call (609) 716-7777, x 131.

CONTACT: Nicole Beagin (609) 716-7777 x 131



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