When hospitals admit patients under an observation stay rather than on an inpatient basis, patients may unknowingly have to pay out of pocket for necessary follow-up skilled nursing care. The admission distinction is important because Medicare covers subsequent nursing and rehabilitation only if a patient has stayed in a hospital for at least three consecutive nights as an inpatient.

The observation vs. inpatient designation has been an issue for several years, reports The Columbus Dispatch. Hospitals are encouraged to reduce expensive short-term stays. Plus, if a patient who receives observation care returns to the hospital within 30 days, the repeat visit does not count as an actual readmission that subjects the hospital to a potential penalty.

Medicare held an "open door" conference call last week with hospitals and doctors to address the admission issue, and lawmakers are trying to pass legislation that would limit the use of "observation days" because of the financial consequences it can have for thousands of patients. The most recent bill, introduced by Rep. Tom Latham, R-Iowa and primary sponsor Rep. Joe Courtney, D-Conn., proposes counting observation stays toward the three-night rule and has 162 co-sponsors in Congress, according to Live Well Nebraska.

RehabCare will continue to closely follow this story as it develops.

By Margaret Schmidt