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Medical Debt and L.A. Bankruptcy: Medicare Technicality Driving Up Costs

August 11, 2012

A little-known - and growing - practice by hospitals, rehab facilities and Medicare are driving up medical costs exponentially. hospital2.jpg

It has to do with how you are classified by hospital staff when you are first admitted and throughout your stay. A check-mark in the "inpatient" box will mean that a significant portion of your hospital bill, as well as any subsequent inpatient rehabilitation will be covered. However, a check in the "observation" box during your initial hospital stay will mean you will likely be responsible to cover the astronomically high cost of your stay and any subsequent care.

The trouble, as Orange County Chapter 7 Bankruptcy Lawyer Vincent Howard knows, is that many people don't realize which classification they've received until after they get their bill.

It may seem like a minor technicality, but it can literally end up costing you tens of thousands of dollars - money you especially don't have if you're living on a fixed Social Security income.

Here's the basics of it: Medicare will pay far less for an "observation" stay than for "inpatient" care. Because Medicare is seeking to cut costs wherever possible, they have employed a huge number of new auditors. Those auditors are screening hospital admission practices with increasing scrutiny. If they second-guess a hospital's classification of inpatient as opposed to observation, the hospital risks losing every penny of Medicare reimbursement. So as a growing trend, they are more frequently marking a patient as "under observation," even though in a lot of cases, this violates even Medicare's own policy for what qualifies.

Medicare specifies that most observation stays shouldn't stretch beyond 24 hours. It's only in rare and exceptional cases that it is allowed to go beyond 48 hours.

However, of the more than 1 million observation hospital stays recorded in 2009 (which was an increase of 25 percent from two years earlier), 50 percent were longer than 24 hours. What's more, according to a study from Brown University, about 1 in 7 were longer than 48 hours.

The difference is not so much in the care you receive while you're in the hospital or the rehab facility. The difference is in the cost.

Sometimes, those costs can soar into five figures, depending on the severity of your injury or illness and how long you receive treatment.

As one representative for the Center for Medicare Advocacy told a CNNMoney reporter recently: It would seem a technical billing issue, but in reality, it can have disastrous financial consequences.

The whole idea of the "observation" classification is to give doctors a means to keep you in the hospital when they can't say for sure you're healthy enough to leave, but they also can't determine if you're ill enough to stay. So you're "observed" for a day or so, treated and then a doctor can make the official call.

A typical example would be if an individual comes into the hospital complaining of chest pains. Maybe all the tests come back normal, but other risk factors mean the person could soon suffer a heart attack. Putting them on observation gives doctors a chance to make sure the person will be Ok before they're released.

But it's being used for an increasing number of patients with all types of ailments - patients who really should be admitted in the first place. For example, a 71-year-old woman reported that she fell and broke her pelvis in three places. She was taken to the hospital, spent five days there, and was then transferred to a rehab facility.

If she had been technically admitted inpatient, she would have had most of that hospital stay covered, as well as a full 20 days of rehab covered as well. Unfortunately, she was marked as "observation" - something she was never told, and something that ended up costing her thousands of dollars.

In most cases, it's the rehab more than the hospital visit that will end up costing you the most. If you spend three consecutive days in the hospital as inpatient, the next 20 days in rehab are covered, and then you pay about $145 a day after that.

However, if you were under observation in the hospital, you will pay full price for everything. And let's say you spend only two days in the hospital as opposed to the three. You still won't be covered, and if you spend the next three months in rehab, you could end up paying upwards of $20,000.

Another issue with all of this is that the three-day policy was written decades ago. Medical advances have been such that longer hospital stays simply aren't as necessary as they once were.

Medical bills are often a catalyst for bankruptcy. This is just one example of how this type of debt can consume you.

Orange County Bankruptcy Attorney Vincent Howard at Howard Law can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.

Additional Resources:
The painful new trend in Medicare, By Amanda Gengler, CNNMoney

More Blog Entries:
More Seniors Filing for Chapter 7 Bankruptcy in L.A., July 16, 2012, Orange County Chapter 7 Bankruptcy Lawyers Blog