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May 01, 2018

Current Developments in Medicare & Nursing Home Practices

The PDF for the issue in which this article appears can be found here.

Editor’s Note: At the April meeting of the Commission on Law and Aging, Toby Edelman, a Senior Policy Attorney at the Center for Medicare Advocacy, presented a slide show/ discussion of recent developments in Medicare and Nursing Home Law and Practice. Ms. Edelman ably and succinctly discussed three important developments which I have attempted to summarize:

- Observation status

- Jimmo/ ”The Maintenance Standard”

- The Bipartisan Budget Act of 2018

- Repeal of therapy caps

- Earlier closing of the donut hole (Medicare Part D, prescription drugs)

Observation Status

Ms. Edelman first discussed the problems patients and their families have regarding observation status in the hospital.

“Observation Status” is a Medicare billing issue that is an increasing problem for hospitalized patients. As far as care is concerned, observation status is identical to inpatient care (although observation is considered outpatient care, coverable by Medicare Part B). A patient in observation status usually occupies a hospital bed alongside inpatients and is given whatever treatment is necessary. Patients often don’t even know that they are in observation status rather than inpatient status, although since March 2017, hospitals have been required both to give patients in observation status a federal notice called the Medicare Outpatient Observation Notice (MOON) and to explain the notice orally. Patients have no right to appeal the hospital’s decision to put them in observation rather than inpatient status. The primary im­pact of observation status is financial. Patients most affected by observation status are those who need follow-up care at a skilled nursing facility (SNF). Many Medicare beneficiaries have Medigap policies that cover deductibles for inpatient hospital care and copayments for Part B services. However, Medicare covers a SNF stay under Part A only if the patient was a hospital inpatient for at least three consecutive nights. Patients under observation are responsible for paying their entire SNF bill out-of-pocket.

The incentive for hospitals to behave in this manner arose primarily from hospitals’ need to avoid being penalized by Recovery Audit Contractors (RACs) for admitting people who, in the RAC’s view, should have been classified as outpatients. By limiting inpatient admissions and putting more patients into observation status, hospitals avoided the RACs’ sanction – loss of all Medicare reimbursement for the medically necessary care they provided to patients whom they “improperly” classified as inpatients. Initial reviews of hospitals’ inpatient/outpatient decisions are now made by Quality Improvement Organizations, but hospitals remain wary and observation status continues.

The refusal to give the patients the right to appeal their observation status will soon be tested in a federal court. For more information, visit:­tionwide-class-observation-status-case/

Jimmo/ The Maintenance Standard

A related Medicare problem is the “Myth of Improvement,” a mistaken belief held by many caregivers that Medicare covers care only if the beneficiary is expected to improve. The legal decision in Jimmo vs Sebelius, a nationwide class action, affirmed that Medicare benefits cannot be dependent on the beneficiary’s potential improvement. This maintenance standard of care, which also applies to Medicare Advantage Plans, covers care in Skilled Nursing Facilities, home health, and outpatient therapy. However, many health care professionals, providers, Medicare reviewers, and contractors continue to act in accordance with the Myth of Improvement. The Centers for Medicare & Medicaid Services (CMS) created a webpage,, dedicated to explaining the Jimmo Settlement and the maintenance standard of care and informing the beneficiaries of their rights under Jimmo.

More information about Jimmo vs Sebelius is at:­loads/2018/01/Medicare%20SNF%20Coverage%20and%20Jimmo%20v.%20Sebelius%20Toolkit.pdf

Improvement, http://www.medicareadvocacy. org/?s=improvement&op.x=0&op.y=0

The Bipartisan Budget Act of 2018

Two positive Medicare developments were also noted: the repeal of therapy caps and the closing of the “donut hole” for prescription drug coverage in 2019.