Solution to Medicare Part B Cost Increases? Look at “Outpatient” Observation Status

If Congress and the Administration truly seek ways to limit Medicare premiums and deductibles, they ought to look at CMS’s hospital Observation Status policy.

A major cause of the Part B increase is likely the parallel increase in so-called “outpatient” Observation Status, the use of which has more than doubled since 1999. The result of this misguided policy, under which inpatient-level hospital services are billed as outpatient “Observation,” is that unprecedented amounts of hospital care are being billed to Medicare Part B, rather than Part A. This was never intended by the law.

Part A is called “Hospital Insurance” in the Medicare Act. Yet, thousands of patients stay in hospitals for many days only to learn they were not admitted as inpatients. Instead, they are classified as outpatients on Observation Status. One of the myriad consequences of this policy is that Part B expenses are skyrocketing – increasing Part B premiums and deductibles and cost shifting to Medicare beneficiaries. These costs should not be included in calculating the share of Part B costs that beneficiaries must pay.

Congressman Joe Courtney (CT-2) wrote the Secretary of Health and Human services asking her to review the link between Observation Status and Part B costs. We hope this will help lead to real reform of the so-called outpatient Observation policy and Part B cost-sharing.