Berwick: Throw out Medicare's three-day inpatient stay rule

'Observation' patients get stuck with rehabilitation bills because of the rule

Former CMS chief Don Berwick says that a Medicare rule requiring beneficiaries to spend three inpatient days in a hospital before receiving coverage for rehabilitation care should be abandoned, in part because of the increasing use of "observation" status at hospitals.

Observation status was created as a way to give physicians a 24- to 48-hour window to evaluate whether a patient should be admitted, but observation stays longer than 48 hours have grown from 3% of Medicare beneficiaries in 2006 to 8% to 2011.

In an interview with the Boston Globe, Berwick said that a growing number of beneficiaries are spending days in a hospital without realizing they were never admitted. When they later try to check into a nursing home for rehabilitation care, they are stuck with the bill.

"The patient ends up holding the bag and that's not fair or appropriate," said Berwick, who now is a candidate for governor of Massachusetts. He added that he discussed eliminating the three-day rule while he served as CMS chief, but there was "concern in the administration that it would lead to abuse of the system."

Berwick's recommendation includes putting safeguards in place, such as requiring a physician to verify a patient's condition.

Rep. Joe Courtney (D-Conn.) proposed a bill in 2010 that would eliminate the distinction between inpatient and observation status, allowing any patient who spends three days in the hospital to qualify for rehabilitation care regardless of whether they were admitted. Three years ago, the bill had 11 sponsors; now, it has 93.

"It seems like there is a statutory fix that is required and this was the cleanest way," Courtney said, adding that Medicare's new "two midnights" rule does not solve the problem. (The "two midnights" rule deems an admission appropriate for a Medicare Part A payment if a physician expects a beneficiary's treatment to require a two-night hospital stay and admits the patient under that assumption.)

Courtney said that CMS is currently analyzing the cost of scrapping the three-day rule, adding that he believes his bill will get wrapped into legislation for broader Medicare reform (Kowalczyk, Boston Globe, 8/29).

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