What does this mean? It means it's a scam, basically. Here's a somewhat explanation and here's a more formal study from some of my colleagues. Basically, three issues. 1) Hospitals are now penalized by Medicare if hospital patients are re-admitted within 30 days. If they never "admitted" you in the first place, you can't be re-admitted. 2) If you're on "observational status," you aren't an inpatient. That means that instead of being paid the flat Medicare Part A rate for a hospital episode, they can charge for all kinds of specific services and it comes to more money -- often out of pocket from the unsuspecting
Problems are not only the possibility of higher out of pocket costs to patients, but compromised care. When she changed from observational status to admitted, my mother had to be moved to a different ward. That's how the hospital is organized. Ergo, different nurses and doctors. Not only is continuity compromised, but for elderly people this can be confusing and stressful.
We need a better way. With Accountable Care Organizations and capitated payment, none of this will happen. After all, it costs somebody more in the end, even if the hospital finds it more economically prudent to do things this way. If a system of care -- primary care, specialists, hospital -- gets one fee to take care of a person, they'll do it the right way. Long story made very short here, but we'll talk more about it.
Meanwhile, if you or your loved one ends up in the hospital, ask if you/they are on "observational status." If so, yell and scream. If they're really in the hospital, and getting inpatient services, insist that they be admitted. Don't take no for an answer.