Report: Loophole abused

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Results of a new study confirm long-term care providers' suspicions that they are being denied access to many post-hospitalization patients due to hospitals' admitting and coding practices.

The ratio of Medicare patients who were “held for observation,” rather than being admitted for an inpatient stay, soared 34% from 2007 to 2009, according to a Brown University analysis.

In order for a beneficiary to receive covered care in a skilled nursing facility following a hospitalization, he or she must first be considered an inpatient for three days. If the beneficiary is admitted for an observation stay only, Medicare can deny coverage.

The so-called “Medicare loophole” has angered many nursing home advocates, and consumers, some of whom weren't aware they were in the hospital for multiple days under outpatient status.

“The dual trends of increasing hospital observation services and declining inpatient admissions suggest that hospitals and physicians may be substituting observation services for inpatient admissions — perhaps to avoid unfavorable Medicare audits targeting hospital admissions,” investigators wrote.

Observation stays grew an average of 7% and the number of patients held for longer than 72 hours under “observation” status nearly doubled during the study period.