Under Medicare regulations, a hospital is entitled to only one payment if a same-day readmission occurs for symptoms related to the prior stay’s medical condition. This regulation was crafted to deter unnecessary discharges and readmissions solely intended to increase reimbursement.

However, according to the results in a recent study in Health Affairs, hospitals may be sidestepping the Medicare same-day readmission regulations by simply coding the second stay as an “observation stay.”  The researchers from Brown University looked at Medicare data from 2007 to 2009, and they found that observation stays have skyrocketed 25% in three years, while inpatients admissions have gone down.

Medicare claims for medically unnecessary observation stays trigger federal False Claims Act liability. Based on this report, this Medicare fraud pattern is costing Medicare millions of dollars each year.

In addition to setting off Medicare fraud alarms, this billing and coding practice has also caught the ire of patient groups.  In fact, a class-action lawsuit has been filed against HHS, arguing that the rampant inappropriate use of observation status has illegally denied patients Medicare coverage and burdened them with hospital bills that racked up to hundreds or even thousands of dollars. Notably, patients who are under observation status rather than admitted are covered by Medicare Part B instead of Medicare Part A, which results in patients picking up a larger share of the healthcare tab.

More information for whistleblowers is located at the Nolan & Auerbach, P.A. website.