Centers for Medicare & Medicaid Services (CMS) Proposes New Rules Addressing “Observation Status” and Medicare Coverage

As part of the annual update to inpatient hospital reimbursement
under the Medicare program, CMS is again considering observation status. This
time, CMS is proposing "a time-based presumption of medical necessity for
hospital inpatient services based on the beneficiary's length of stay" (78
Fed. Reg. 27486, 47644 (May 10, 2013)). Under the proposed rules, Medicare would presume that an
individual is an inpatient if the physician documents that the patient requires
more than two midnights in the hospital following an inpatient admission. The
"starting point for this time-based instruction would be when the
beneficiary is moved from any outpatient area to a bed in the hospital in which
the additional hospital services will be provided." On the other hand, Medicare
would presume that hospital services spanning fewer than two midnights should
be considered outpatient observation. For patients whose inpatient stay was
fewer than two midnights, CMS would pay for inpatient care only if the services
were identified on Medicare's inpatient-only list or "in exceptional cases
such as beneficiary death or transfer." According to the Center for
Medicare Advocacy, the proposed time-based presumptions significantly change
current practice, but would not help many beneficiaries who are currently
caught in observation status. It might, in fact, make matters worse.

Source/more: Center for Medicare Advocacy