Most agents are aware of the practice of placing Medicare beneficiaries “Under Observation” instead of admitting them as an inpatient for overnight stays, but do you know WHY hospitals do this?  It is because of…drum roll please…money.

But then you probably guessed that (since money is the answer to almost every question).

Before I explain it further, let me draw the comparison between high schools and hospitals.  High Schools in my state are rated on a 4 star system, with the high-coveted 4 stars reserved for the “best” schools with the highest graduation rates.  To game the system, many school districts have built “alternative” schools for students who are likely not to graduate. These alternative schools take the kids that would drag down the ratings of the main school. It’s cheating, and brilliant as many things are. Hospitals are guilty of the same ruse. They are graded/rated on a system that rewards or punishes them based on how many patients they discharge that are RE admitted within 30 days. The logic is that if they did a “good job” with their procedures and discharge instructions, the patient will not be readmitted.  As we all know, many people simply won’t follow directions (my children, if you are reading this, yes, I’m referring to you!) and others are at high risk to be readmitted due to their lifestyle. This has nothing to do and should not negatively impact the hospital, but it does.  For example, a 72 year old, obese, single, male alcoholic comes to the ER with a possible heart attack.  The hospital places him in “under observation” status as they do a quad bypass and keep in for 4 overnights.  Was he admitted to the hospital?  By any reasonable estimation–yes.  But by the decision of someone much higher up than the admitting physician, he was deemed “under observation” because he was very, very likely to be readmitted within 30 days and hurt the hospital’s score card.  Why is this patient a readmission risk?

  1. he lives alone
  2. he is already very unhealthy since he is obese
  3. he is an alcoholic

You get the picture.  If he was disciplined enough to follow his discharge instructions, he probably wouldn’t have been in the hospital to begin with.  The hospital knows who hurts their scores. They have the data.

Don’t Blame The Hospitals–It’s The System

The crazy thing is the system our government has in place actually rewards hospitals higher when the patient DIES. Yep, you read this correctly.  CMS places a higher value on reducing re-admissions than on bettering mortality rates.  Based on a Journal of Medicine’s 2/2017 study, Mortality costs a hospital only 0.2% of its Medicare payments vs. 3% under the CMS re-admission penalty program. As my teenagers would say, “OMG, OMG!”  You can Google the JAMA article and see that hospitals benefit when the patient dies… As an insurance professional, our agents look to us for solutions and on this topic, we have none.  All you can do is educate your client. The system isn’t perfect. They have no power to change their status when they are or are not admitted to a hospital. The agent has no ability to help them.  Knowledge is power, but in this case, it really isn’t–but it is all I have to offer until Congress acts on this practice.  Comments or questions? email: