Medicare Fraud Effort Gives Elderly Surprise Hospital Bills

Larry Barrows, 76, spent eight days in a Canton, Connecticut, hospital after falling twice in a day. Despite being covered by Medicare, the federal health plan for the elderly, Barrows was hit with $36,000 in normally reimbursed bills because of an unintended glitch in U.S. rules.

John Dempsey Hospital said Barrows was under “observation” during his stay, said his wife, Lee. Under Medicare rules, patients listed as under observation face 20 percent co-payments that wouldn’t be required if they were admitted, and expensive aftercare isn’t covered at all. Larry Barrows needed three months of rehabilitation that Medicare wouldn’t pay for because the hospital didn’t call him an inpatient, something his family didn’t learn until halfway through his hospital stay, said his wife.

“A hotshot doctor came down armed with a social worker and Larry’s doctor, and said, ‘Gee, I’m sorry, your husband’s never been admitted,’” Lee Barrows, 75, said in a telephone interview. “I said, ‘Who the hell have I been visiting?’”

Elderly patients caught between U.S. hospitals and Medicare auditors pushing to cut costs are increasingly facing tens of thousands of dollars in unexpected medical bills like the Barrowses, patient advocates say.

Photographer: Chris Ware/Bloomberg

Lee Barrows poses with a photograph of her late husband Larry at her home in Connecticut. Close

Lee Barrows poses with a photograph of her late husband Larry at her home in Connecticut.

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Photographer: Chris Ware/Bloomberg

Lee Barrows poses with a photograph of her late husband Larry at her home in Connecticut.

The observation classification is designed to be used when there isn’t an immediate diagnosis, or if it is determined the condition isn’t normally treated within an inpatient setting, such as setting broken bones.

Challenging Admissions

Hospitals, though, sometimes extend the use of observation status to avoid being challenged by Medicare auditors on patient admissions when cases fall in a gray area between inpatient and outpatient. Inpatients are more costly to Medicare, said Robert Corrato of Executive Health Resources, a consultant for hospitals on how to classify patients. Medicare watches admissions closely, and if an admission is ruled inappropriate, the hospital doesn’t get paid.

“There’s fear they will be brought under scrutiny for making a false claim,” Corrato, whose closely held company is in Newton Square, Pennsylvania, said in a telephone interview.

That shouldn’t be happening, said Marilyn Tavenner, acting administrator of the Centers for Medicare and Medicaid Services. In most instances, observation shouldn’t last for more than 48 hours, she said in a July 2 telephone interview.

“Patients staying three, four, five, six days is not the intent of observation,” Tavenner said. “Observation is designed for the first 24 to 48 hours. Beyond that, hospitals should make a decision about whether to admit.”

Medicare Letters

Medicare has begun looking into how hospitals use the observation classification. In letters sent July 7 to the American Hospital Association, the Federation of American Hospitals, and the Association of American Medical Colleges, Tavenner asked the trade associations why use of observation cases lasting more than two days had doubled from 2006 to 2008.

“Observation care of more than 24 hours can have tremendous impact on Medicare beneficiaries,” Tavenner wrote. “Only in rare and exceptional circumstances would it be reasonable and necessary for outpatient observation services to span more than 48 hours.”

Anecdotal reports indicate that use of observation may have grown since 2008. In December 2008, Medicare expanded a pilot auditing program nationwide to cut fraud. Since then, the number of patients in long-term observation has increased, said Toby Edelman, senior policy attorney with the Center for Medicare Advocacy, in Washington. Lee Barrows isn’t alone in her frustration, Edelman said.

‘Calls From All Over’

“We’re getting calls from all over the place about this,” said Edelman, citing complaints from 18 states since 2008. “They’re told when they’re being discharged, that ‘By the way, Medicare won’t pay for your nursing home care because you weren’t an inpatient.’”

The hospital audit program began in 2005 in the three states with the biggest Medicare markets, New York, California and Florida. Medicare expanded it in 2006 on the way to a national rollout. Contractors who run Medicare claims processes have also upped enforcement, and Democrats added $350 million to fight fraud in the 2010 health-care law.

Mike Summerer, director of John Dempsey Hospital, where Larry Barrows stayed, said the hospital is feeling pressure from auditors. “It’s not unusual to have an inpatient admission denied that we then have to correct to outpatient, or observation,” he said in a telephone interview.

Dempsey Hospital’s average time for observation is 24 hours, he said, though there are exceptions when patients don’t have an available next step of care. He declined to discuss Barrows’ case, citing privacy law concerns.

‘A Few Extra Days’

“We use observation status, as defined in our policy, to observe patients and decide what their status will be,” Summerer said. Sometimes, “they might stay in outpatient status for a few extra days.”

Hospital associations and patient advocates interviewed said they’ve been getting the same type of feedback from patients as the advocacy center’s Edelman about increasing numbers of long-term observation stays.

“We certainly have been aware of an increased trend in observation and have been monitoring it in southeast Pennsylvania for the past year or so,” said Pam Clarke, vice president of health-care finance at the Hospital & Healthsystem Association of Pennsylvania, based in Harrisburg.

Health Overhaul

The issues surrounding hospital classifications are likely to become more prominent as a result of a provision in the health overhaul signed into law by President Barack Obama in March. The new program aims to retrieve about $1 billion a year from hospitals that re-admit too many patients, according to a Congressional Budget Office analysis.

“Certainly, hospitals will have an incentive not to admit people if they’re going to be penalized if they re-admit them,” said Nora Super, director of government relations with AARP, the lobby for people ages 50 and older.

Hospitals need to make sure patients receive the kind of treatment they require based on their condition and not “on how to generate the most revenue,” AARP, based in Washington, said today in an e-mail.

“AARP expects Medicare and hospitals to work together to address this disturbing trend,” said Executive Vice President John Rother in the statement. He said the observation classification may lead to higher costs and lower quality for Medicare patients and may deprive them of necessary follow-up care, such as stays in a skilled nursing home.

Observation Only

Dot Kirby, 90, of Saratoga, California, said she didn’t know the consequences of the observation status after she fell in her garage in January, fracturing her hip in two places. She was taken to El Camino Hospital in Mountain View, California, where she has worked as a volunteer for 30 years, before stopping a decade ago.

After her fall, “I couldn’t walk, I couldn’t do anything,” she said. When she entered the hospital, a staff person had her sign a form saying she was in observation, Kirby said in a telephone interview.

“I didn’t know anything about it and she didn’t explain it to me,” Kirby said. The hospital took X-rays of her hip and, according to a record of the hospital charges provided by Kirby, performed $25,498.73 of care and services.

When she left the hospital, she needed five weeks of physical therapy at a nursing facility to walk again. Medicare refused to pay the $11,180.93 bill, she said.

Lost Benefits

Under the agency’s rules, Medicare would have covered Kirby’s bill had she been a hospital inpatient for three days or more.

While a patient’s doctor decides whether someone is admitted, hospitals review those decisions. The status of patients can be changed as a result of these reviews, said Corrato, the hospital consultant.

“In the past, the reality was that hospitals and physicians were on their honor,” he said. “No more.”

Medicare’s Tavenner disputed the idea that pressure from the audits, which are contracted to private companies, were causing hospitals to put more patients in observation longer.

In her July 7 letter to hospital groups, Tavenner wrote that “Some have speculated that the recent increase in the duration of observation care is due to hospitals’ concern about post-payment review of inpatient claims. We wish to emphasize that that there has been no change in CMS policy for how hospitals should approach such cases.”

Medicare Monitoring

Corrato disagreed. He said auditors in the Medicare program are increasingly looking at whether a patient should have been admitted. The agency has “made it very clear that they were going to be looking very closely at medical utilization,” Corrato said.

A 2008 Medicare report on the audit program supports his statement. It says that 41 percent of the overpayments found by the auditors “was due to the service being rendered in a medically unnecessary setting ... These are situations where the beneficiary needed care but did not need to be admitted to the hospital to receive that care.”

Edelman and the Center for Medicare Advocacy have demanded that Medicare, which pays hospitals almost $200 billion a year, stop them from using “observation services” for long periods.

“Congress needs to make clear that anyone who is in a hospital for 24 hours or more is considered an inpatient,” Edelman wrote in an e-mail. “Medicare beneficiaries either forego nursing home care entirely or pay tens of thousands of dollars privately for care that Medicare should have covered.”

To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net.

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