The Unintended Consequences of Medicare Observation Status

Observation status is a classification for Medicare beneficiaries that are billed as outpatients for a hospitalization. This has implications for out-of-pocket expenses for patients as well as their access to post-acute care.

This is a review of 3 published studies performed by our research team to examine the potential unintended consequences of the current Medicare policies related to cost-sharing and post-acute care coverage for patients hospitalized under observation status. Our study questions were as follows: 1) Is there an unmet need for post-acute care among Medicare observation patients 2) Which patients are at highest risk for high out-of-pocket costs related to observation care 3) Is cost-sharing for observation care associated with health care -related financial strain and health care rationing?

Our studies demonstrated that Medicare observation policy could be associated with a number of unintended consequences including decreased access to necessary post-acute nursing care, increased out-of-pocket costs, particularly for low -income patients, increased concerns related to the cost of care, and inadequate patient understanding of observation policies.

Patients and providers should be aware of the current policies surrounding observation care. Patients should be informed of their observation status and should have access to case managers and social workers to help them navigate and understand the implications of their observation hospital stay.