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From The LGH Physician Advisor Team
“If I had a nickel…” sure applies to the Observation or Inpatient question.
Truly this question arises dozens of times every day in the minds of the LG Health Medical & Dental Staff and community. The question is asked in every specialty, be it pediatrics, OB-GYN, surgery or medicine, because it is not a medical care question but a billing question. 
For Medicare it is the law that this hospital billing status requires a physician order to be effective, even though it does not change how we treat our patients.  Every insurer has its own contractual rules on what criteria make a stay appropriate for inpatient payment and may downgrade payment to Observation even without a physician order.  It is such a simple order, yet since money is involved, it is very complex. Thankfully the Medical & Dental Staff does not have to remember the various rules for the various payers; they are supported by the Admissions Team from care management, whose job it is to know the payer-specific criteria.
Physician Advisors also are trained to help answer the question so you don’t have to stress over it. We want you to focus on treating the patient! Also, there is turbulent history surrounding the OBS vs Inpatient status question. Below are some myths and facts to help clarify some of the most common questions and concerns regarding patient status. Before we proceed, please remember this very important fact: Status doesn’t determine how you care for the patient.  Always give appropriate care with consideration of the resources required. The care management team can help sort out the status.
Question: Will being in Observation status cost more than being in Inpatient status?
Fact: Sadly this question is impossible to answer without detailed knowledge of the patient’s specific insurance plan. Many patients do not even know the specific details of their plans. Do they have a high- deductible plan?  Do they have a supplemental plan?  As more and more working people are moved onto high-deductible plans, they will pay a lot if the work-up is done in the hospital setting -- regardless of OBS or Inpatient -- rather than as an outpatient.  For commercial insurance, it certainly is possible for Inpatient to cost more than Observation.  For straight Medicare, the payment rules changed in January, so Observation will nearly always be less expensive than an Inpatient stay.  The 2 MN rule also limits the length of time a patient can be treated in Observation, so that any medically necessary long stays would change to Inpatient. If the patient has anything other than straight Medicare, all bets are off. 
Myth: All observation patients must change to inpatient status after the 2ND Midnight (MN).
Fact: While it is true that the majority of Medicare and straight Medicaid patients will meet CMS criteria for a flip to Inpatient when passing the 2nd MN, all insurance companies don’t use those rules. For every patient, certain criteria must be met, including severity of illness and level of intensity for care, before an inpatient order can be written. The Physician Advisors carefully review cases before having the care manager ask the provider for a status change.  Please trust your care management team if they page you to change the patient status.
Myth: My patient won’t be able to go to a skilled nursing facility (SNF) without having 3 MN stay.
Fact: Any patient who needs skilled care and meets skilled criteria can get into a SNF. The nuance here is whether the insurer will cover the SNF cost. Only straight Medicare requires a 3 MN inpatient stay.  All other payers will base the decision on documented skilled needs and patient factors, rather than time.
Myth: It’s the right thing to do to keep my patient in the hospital 3MN so Medicare covers the SNF stay, even when the patient is medically stable and physical therapy is the only service keeping him or her in the hospital.
Fact: While the provider feels he or she is helping the patient, it could very well be that the provider is unknowingly committing fraud. This puts the provider at risk, and if audited, any SNF payment would need to be paid back to Medicare.

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