Medicare Coverage of Acute Hospital Care
Medicare coverage for services received in acute care hospitals is probably the most important component of the Medicare program. 95% of all Medicare Part A coverage goes for hospital care.
Not to be Confused with Rehab Hospital Care.
NOTE: See our Outpatient Observation Status page for detailed information on that issue.
How to Know if Medicare Should Cover Your Acute Hospital Care
Medicare claims for inpatient hospital care are suitable for Medicare coverage, and appeal if they have been denied, if they meet the following test:
The patient’s condition must have been such that the care he required could only have been provided in a hospital, or he required a skilled nursing facility (SNF) level of care, and no SNF bed was actually available. (Note: A SNF level of care means that the patient required skilled services – from a physical therapist or a registered nurse, for example – on a daily basis.)
Additional Advocacy Tips:
- The opinion of the patient’s attending physician is the most important element in your case. If the physician believes that it was medically necessary for the patient to receive care in the hospital, or that he needed at least a skilled nursing facility level of care but no skilled nursing facility bed was actually available, you probably have a winning case.
- Ask the attending physician to put his or her favorable opinion in writing, explaining with as much detail as possible why the coverage standard described above is met in the patient’s case.
- Usually a Medicare denial means not that the patient must leave the hospital, but that any further stay will be at his own expense. Remember, however, that the patient cannot be required to pay unless he has been given a written notice of denial of coverage, and once a written denial is delivered he cannot be charged until the third day following the notice. Example: denial notice delivered on Monday, the patient can be charged for his stay beginning Thursday.
- Appeal as quickly as possible. In some cases the patient is entitled to “expedited” review, which may include additional time in the hospital before charges accrue, if you request a review immediately. The Medicare denial notice given by the hospital will tell you how to immediately appeal by calling the Connecticut Peer Review Organization.
The Medicare Hospital Benefit
The following is a detailed description of the Medicare hospital benefit, including the role of peer review organizations and hospitals in making coverage decisions, and the patient’s right to review. Medicare coverage for services received in acute care hospitals is probably the most important component of the Medicare program. 95% of all Medicare Part A coverage goes for hospital care. Nevertheless, recent developments in the hospital area, particularly the imposition of the prospective payment system, have caused serious problems for beneficiaries. More than ever, it is vital that beneficiaries understand how to protect their right to a fair degree of Medicare hospital coverage.
After the payment of a deductible amount, a beneficiary is entitled to Medicare coverage for 90 days of hospital care during each “spell of illness.” A spell of illness begins when a beneficiary enters the hospital, and does not end until the beneficiary has been out of the hospital, or the nursing home, for 60 consecutive days (or remains in the institution but does not receive Medicare-covered care for 60 consecutive days). In addition, the beneficiary is entitled to 60 days of hospital care as a “lifetime reserve.” Once exhausted, lifetime reserve days may not be replenished. Days 61 through 90 and lifetime reserve days require the payment of a coinsurance.
In 1983 Congress established a prospective payment system (PPS) for Medicare reimbursement of inpatient acute care hospital services. Under PPS, Medicare payment is made at a predetermined, specific rate for each discharge. All discharges are classified according to a list of diagnosis-related groups (DRGs). The list contains approximately 500 specific DRGs. Each DRG is assigned a dollar amount based on the average cost of caring for patients with similar diagnoses in the past. The reimbursement for appendicitis, for example, might be set at $2000. So, for every patient treated in the hospital for appendicitis the hospital would receive $2000 in Medicare reimbursement regardless of whether the patient’s care actually cost the hospital less, or more, to deliver. This means that the hospital can make a profit by discharging a patient as early as possible. On the other hand, the hospital will suffer a financial loss if the patient remains in the hospital too long. In essence hospitals have a financial incentive to give less care.
The rules of Medicare hospital coverage are administered by Quality Improvement Organizations (QIOs). QIOs are organizations designated by and contracting with the secretary of the Department of Health and Human Services to review the provision of health care services and items for which Medicare may be paid for purposes of determining whether those services were reasonable and medically necessary, whether the quality of such services meets professionally recognized standards of health care, and, in the case of hospital services, whether they could have been effectively provided more economically on an outpatient basis or in an inpatient health care facility of a different type.
Although QIOs oversee in a general way the granting and denial of Medicare hospital coverage, hospitals themselves are given the job of determining the availability of Medicare coverage in most cases. Often the QIO will review the appropriateness of a given admission on a retroactive basis. In fact the patient may have left the hospital before the QIO informs the hospital that the admission was not medically necessary. Sometimes the hospital is denied payment. This means that the hospital is very concerned to admit only those patients for whom the QIO will approve coverage. Significantly, patients who are unable to gain admission to the hospital are usually denied all access to QIO review. Unless the patient takes affirmative steps to request QIO review of an admission denial, the QIO will never learn that the patient has been denied. Thus the hospital has a financial incentive to deny admission in certain cases, and that denial decision is usually not subject to review. Many observers feel this situation has led to a significant loss in access to hospital care, particularly for very elderly patients beset by “chronic” conditions.
At the time of admission to the hospital, the hospital must provide every individual who is entitled to Medicare with a written statement which explains the individual’s rights to benefits for inpatient hospital services and post-hospital services under Medicare, the circumstances under which the individual will or will not be liable for charges for remaining in the hospital, the individual’s right to appeal denials of benefits for continued in-hospital services including the practical steps to initiate such appeal, and the individual’s liability for payment for services if such denial of benefits is upheld on appeal.
A hospital may not charge a beneficiary for any service for which payment is made by Medicare even if the hospital’s cost of furnishing services to that beneficiary is greater than the amount the hospital is paid. The hospital may charge the patient only for the applicable deductible and co-insurance amounts, or for services which are not covered by Medicare because, for example, the care is custodial (non-skilled), is not medically necessary, or could be effectively delivered more economically on an out-patient basis or in an in-patient facility of a different type.
Hospital Coverage Criteria Explained
The hospital may charge a beneficiary for services received in the hospital only if all of the following conditions have been met:
- The hospital must determine that the patient no longer requires in-patient hospital care (the phrase “in-patient hospital care” includes cases where a beneficiary needs skilled nursing facility care, but a skilled nursing facility bed is not available.)
- The attending physician agrees with the hospital determination in writing, or, if the hospital is unable to obtain an agreement from the physician, the QIO concurs in the hospital’s determination.
- The hospital must notify the beneficiary in writing that the beneficiary no longer requires in-patient hospital care; that customary charges will be made for continued hospital care beyond the second day following the date of the notice; that the QIO will make a formal determination on the validity of the hospital’s finding if the beneficiary remains in the hospital after he or she is liable for charges; that the hospital’s denial decision is appealable, and that any charges for continued care will be refunded if a finding is made on appeal that the patient did require continued in-patient hospital care.
- On July 2, 2007, per the Centers for Medicare & Medicaid Services (CMS) a final rule became effective which governs notification to Medicare beneficiaries of their hospital and critical access hospital discharge appeal rights. As an aide to beneficiaries and their advocates, we have provided several key documents related to this rule:
Memorandum from Thomas E. Hamilton, Director of the Survey and Certification Group at CMS, to State Survey Agency Directors regarding the implementation of the final rule. (.pdf)
CMS standardized hospital discharge notice, “An Important Message from Medicare about Your Rights.” .(pdf)
CMS standardized hospital discharge notice in Spanish, “Mensaje Importante de Medicare sobre Sus Derechos.” (.pdf)
Articles & Updates
- Hospital Mar 14, 2017
- CMS Issues Instructions Regarding the Medicare Outpatient Observation Notice (MOON) Feb 15, 2017
- Hospitals Must Give Patients Notice of Their Observation Status, Beginning March 8, 2017 Dec 14, 2016
- Medicare’s Value-Based Purchasing Program for Hospitals: Paying More to Low-Cost Hospitals That Provide Low Quality Care Jul 6, 2016
- Observation Status and the NOTICE Act: Advocates Not Over the MOON Apr 27, 2016
- Reducing Hospital Readmissions by Addressing the Causes Apr 18, 2016
- Office of Inspector General Authorizes Hospitals to Discount or Waive Certain Drug Charges for Patients Classified as “Outpatients” Dec 10, 2015
- Revisions to “Two-Midnight Rule” Do Not Help Hospitalized Medicare Patients in Observation Status Dec 2, 2015
- Proposed Revisions to “Two-Midnight” Rule Provide Little, If Any, Relief for Medicare Beneficiaries Stuck in the Hospital in Observation Status Jul 9, 2015
- Bundling Payments for Post-Acute Care May 14, 2015
- 2015 Medicare Cost Sharing Oct 9, 2014
- Observation Status: Hospitals May Begin Rebilling Medicare Patients Who Were Hospitalized After October 1, 2013 Sep 4, 2014
- Inpatient Rehabilitation Facilities and Skilled Nursing facilities: Vive La Difference! Jul 31, 2014
- Harm from Medicare’s Hospital Observation Status Debated In Congressional Hearing – Center for Medicare Advocacy Presents Beneficiary Perspective May 21, 2014
- New CMS Rules Do NOT Change Requirement for 3-Day Qualifying Inpatient Hospital Stay Oct 31, 2013
- Observation Status: New Final Rules from CMS Do Not Help Medicare Beneficiaries Aug 29, 2013
- CMS Updates Guidance for Hospital Discharge Planning May 30, 2013
- CMS Addresses Observation Status Again… And Again, No Help for Beneficiaries May 16, 2013
- Déjà Vu All Over Again: CMS Decides (Again) Not to Decide About Observation Status Nov 20, 2012
- CMS Invites Public Comment on Observation Status Aug 9, 2012
- Compare Hospitals or Nursing Homes Using Medicare’s Online Tools Jul 20, 2012
- More Concerns About Observation Status: Hospitals Join the Chorus Jul 12, 2012
- Brown University Confirms Observation Continues to Replace Hospital Admission Status Jun 7, 2012
- Medicare Hospital Readmissions May 2, 2012
- Reducing Rehospitalizations… The Right Way Mar 1, 2012
- Preserving Access to Necessary Care: Ending Hospital “Observation Status” Nov 3, 2011
- Congressman Joe Courtney and Center for Medicare Advocacy Hold Congressional Briefing on Observation Status Oct 24, 2011
- Study Finds that Use of Hospitalists Shifts Costs from Inpatient Care to Post-Discharge Setting Sep 8, 2011
- CMA And Others Support Legislation to End “Observation Status” Jun 21, 2011
- Extended Observation Stays in Acute Care Hospitals: Criticism, Legislation and Discussion Aug 26, 2010
- The Right to Visit Partners and Others In Medicare Participating Hospitals Jun 22, 2010
- Observation Services: What Can Beneficiaries and Advocates Do? Feb 18, 2010