By the numbers

The following Charleston area hospitals provided data on the number of Medicare patients they classified as inpatients and observation patients in 2013:

East Cooper Medical Center

1,571 inpatients

352 observation patients

Medical University Hospital

11,144 inpatients

976 observation patients

Roper St. Francis Healthcare

11,629 inpatients

1,824 observation patients

Trident Health

10,085 inpatients

1,781 observation patients

When 83-year-old Maybell Prewette spent one night in an Eden, N.C., hospital a few years ago because she felt dizzy, she was stunned to find out that a couple puffs of allergy nasal spray cost her more than $600.

Medicare didn't cover the prescription because Prewette was never admitted as a patient at the hospital.

Instead, she was kept overnight for observation. The federal Medicare program doesn't cover the cost of drugs self-administered by "observation status" patients.

Prewette called her local pharmacy after she was discharged and discovered it charges $30 for the same nasal spray. The hospital marked the medicine up 2,000 percent.

"She got one dose of that spray and, in her discharge papers, she was not told to continue taking it and she wasn't given the medicine to take home," said Prewette's granddaughter, Paige Springle, registered CT technologist from Goose Creek. "They should have warned her that it was a super-expensive medicine."

With nearly 50 million Americans enrolled in Medicare and an estimated 10,000 more signing up every day, the federal government is struggling to find solutions to keep the entitlement program solvent. While classifying some Medicare patients under the less-expensive "observation status" during their hospital stay is considered one way to save money, hospitals argue the policy is flawed and has been made more complicated by the murky new "two-midnight rule."

Beneficiaries, like Prewette, don't favor the regulation either, arguing it's not fair that observation patients must shoulder the burden of expensive medical bills they can't afford to pay.

"They get this huge financial surprise when the bill comes," said Dr. Lavern Livingston, a Charleston geriatrician.

Difference is subtle

The distinction between inpatient and observation patient may not matter much to adults who are privately insured, aren't disabled or old enough for Medicare. Even for Medicare beneficiaries, the difference is subtle. They sleep in identical beds, they're treated by the same nurses and doctors and eat the same meals.

"The patient is in a room that looks and feels like any other room and gets the same service," said Dr. Steven Shapiro, chief medical officer for Roper St. Francis Healthcare. "They don't know the difference."

But the price that observation patients must pay for these services can be quite different. While inpatients, covered by Medicare Part A, are not responsible for co-payments, observation patients are classified as outpatients, even though many stay in the hospital overnight. As such, they're responsible for co-payments under Medicare Part B, including some drugs.

Post-hospital rehabilitation offered in nursing homes isn't covered, either. Medicare only covers the nursing home benefit after patients are admitted to the hospital for at least three days - and not at all for patients kept under observation.

Some hospitals educate patients about observation status, but critics argue they could do a better job. Roper St. Francis Healthcare offers observation patients a brochure about benefits covered by Medicare, although administrators admit that the policy is still confusing for many of them.

"Patients don't realize that I can't just arbitrarily say, 'I'm admitting you or I'm putting you under observation status,'" Livingston said. "I have to follow the Medicare rules. I'm hamstrung by them frequently."

'Two-midnight rule'

The federal Centers for Medicare & Medicaid Services set guidelines to help doctors determine which Medicare patients qualify for admission to the hospital and which ones don't, but sometimes the choice isn't obvious.

"Observation is a status in which we're not sure what's really going on with you or that you don't fit the criteria the government has given us that you're sick enough or you have the right diagnosis," Shapiro said. "Generally, we have 24 to 48 hours to figure out what's wrong with you - to either send you home or make you an inpatient."

Last October, the federal government implemented a controversial regulation called the "two-midnight rule," which instructs providers to admit patients only if they anticipate care spanning more than two midnights.

It was intended to clarify the criteria for admission. Instead, doctors say it's only made the regulations more confusing.

"What they thought they were going to do is make it easier for the physician," said Kim Sheldon, director of care management at Roper St. Francis Healthcare. "Look at the patient, 'Am I going to need to have them here two midnights? If so, they're an inpatient. If I don't think so, it's observation.' But it didn't work that way - at all."

The American Hospital Association recently challenged the rule in federal court because it believes the stroke of two midnights makes no sense as a guideline for admission and sets a "wholly arbitrary requirement."

A spokeswoman for the South Carolina Hospital Association said the group would not comment on the issue.

While the vast majority of Medicare patients are likely unaware that the "two-midnight rule" even exists, the debate is well-known among experts in the health care community. In March, during a Medicare panel discussion at a national health care conference in Denver, one hospital administrator said, "I wish it would just go away."

Recovery contractors

To ensure that hospitals are admitting appropriate patients for overnight stays, the federal Medicare program uses Recovery Audit Contractors (RAC) to review samples of medical records.

"Our wonderful government doesn't necessarily trust us," Shapiro said. "So, after that patient leaves, a month later, two months later, five months later, they ask for the chart."

When an auditor identifies an error - for example, a Medicare patient who they think should have been kept at the hospital under observation, but not technically admitted - the federal government withdraws the money it paid the hospital for that patient.

"Every 45 days, they can ask for a phenomenal number of records," Sheldon said.

Hospitals can appeal an auditor's decision, but the appeals process takes years to navigate. The national backlog of RAC appeals awaiting an administrative law judge's decision is a huge part of the problem, said Reese Smith, director of compliance for the Medical University Hospital.

"Right now, we've got over 1,200 accounts sitting somewhere in the appeals process," Smith said.

That's $9.5 million that the federal government paid the hospital to treat Medicare patients, then took back. Roper St. Francis Healthcare estimates $2 million to $3 million worth of its Medicare payments are tied up in RAC appeals.

"We appeal everything," Smith said. "We have the resources to be able to appeal. Our fear is that smaller hospitals may not."

Another problem with the process, hospitals argue, is that the auditors, employed by outside contractors, retain a percentage of the money they recover for Medicare. The system sets up a monetary incentive for the auditors to find mistakes.

'Pretty expensive'

Charleston attorney Michael Sgobbo represents a Sun City woman fighting Medicare over a $10,000 bill for a hospital and nursing home stay in 2012.

"She's 97 years old. She fell and was unable to walk. She was living alone at that point in Sun City," Sgobbo said. "Her daughter took her to the hospital and she ended up staying in the hospital for three nights and four days."

But the hospital never admitted her. After Sgobbo's client was discharged, she spent more than a month recovering in a Bluffton nursing home, but because she was only kept at the hospital under observation, Medicare would not cover her room and board at that facility.

His client paid her bill, appealed the decision to Centers for Medicare & Medicaid Services, and was denied. Sgobbo filed an appeal to that initial rejection, but nearly two years after her injury, he can't predict the outcome of this case or when an administrative law judge will find time to hear it.

"I think we've got another year," he said.

Maybell Prewette also appealed that $600 bill for her nasal spray to Medicare, but the federal government sided with the hospital. When her granddaughter eventually wrote the hospital a letter and complained, they dropped the charge.

"We went round and round with them," Springle said. "It took months."

But hospitals say their hands are tied. Medicare sets, and regularly changes, the rules. Doctors have little latitude to decide which patients qualify for admission and which ones don't, Shapiro said, and just because a patient says he wants to stay in the hospital, it doesn't change the regulations doctors are required to follow.

"We say, 'You're going to end up paying for it,'" Shapiro said. "They'll argue and this and that. And I'll say to them, 'This is a pretty expensive hotel room - probably the most expensive hotel room you'll ever be in.'"

Reach Lauren Sausser at 937-5598.