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Fewer patients linger for days in hospitals without being admitted because of a new federal rule, but hospital and consumer groups are suing the government because they say the policy compromises Medicare patients' care, and patients are often stuck with costly, unexpected bills.

Doctors now have to certify that a patient has a serious enough condition to need at least two overnight stays for Medicare to cover an inpatient admission under the rule, which took effect in October. However, patients can remain in an outpatient or "observation" status — that can even include staying overnight for several nights in a typical hospital room — even though they haven't been formally admitted as an inpatient.

While inpatient care under Medicare has a deductible, medications and care after that are generally fully covered. Time in skilled nursing and rehabilitation facilities after release is also covered. On the other hand, outpatient or observational care does not include post-release treatment, which can cost thousands of dollars, says Alice Bers, the Center for Medicare Advocacy attorney. Outpatient hospital visits also have higher cost-sharing for individual services, and medications are billed separately by the hospitals' pharmacies. Patients then have to seek repayment from other insurance plans or pay out of pocket, Bers says.

The issue can be especially confusing to patients who don't realize they have different co-payments or other cost-sharing for inpatient and outpatient/observational care. Even when patients know the cost-sharing differs, they often wrongly think they're getting inpatient care if they have a bed and a room they've slept in overnight.

After all, the dictionary defines "outpatient" as someone who is treated but doesn't spend the night at a hospital. So when the bills come, it can be a surprise, as it was for John Kauchick's 87-year-old father, Edward, last year in Mississippi. He was shocked when he got a $500 bill in May 2013 for a hospital stay a year earlier that he thought qualified as inpatient, but the business office classified as observation. The bill was for medications that weren't covered under Medicare Part A or Part B, Kauchick says.

The Center for Medicare Advocacy, a consumer group, says it hears from people who "are still regularly being harmed" by outpatient/observation status because they can't afford the post-release treatment or have to pay thousands of dollars to get it. Executive Director Judy Stein says she doesn't see evidence the rule is helping.

The Centers for Medicare and Medicaid Services says it adopted this "two midnight" rule because auditors found many patients were being admitted unnecessarily.

CMS officials told USA TODAY that early data show the number of lengthy outpatient stays is down since the rule took effect, which the agency believes shows the measure is working. And it says there are exceptions, such as when patients are admitted as inpatients but their conditions improve quickly.

Still, the Senate Special Committee on Aging plans to hold a hearing later this month on the rule because of concerns about the effect on Medicare patients.

"Hospitals are between a rock and a hard place," says Joanna Hiatt Kim, the American Hospital Association's vice president of payment policy. "If they admit someone, there's the potential risk of not being paid for that admission if (auditors) deny it as inappropriate. ... But if they put that person under observation, they risk their patient being upset with Medicare's cost-sharing rules."

AHA and hospitals in five states sued the Department of Health and Human Services in April saying that the two-midnight rule was arbitrary and takes away physicians' ability to make the best medical decisions.

The fight mirrors federal health care reform efforts to keep hospitals from admitting emergency room patients for the minor ailments that they did just a few years ago.

Andy Hyman, senior program director at the Robert Wood Johnson Foundation, a philanthropic health group, says the rule meets the larger goal of the Affordable Care Act to cut the cost of health care.

"Hospitals do need to better balance the use of inpatient vs. outpatient care and ultimately reduce unnecessary utilization," says Hyman. "The goal can't be to fill hospital beds."

Sometimes, patients need to be in beds but don't know their status. CMS and consumer advocates recommend patients ask hospitals whether they are outpatient or inpatient and ask hospitals to provide information to explain the differences.

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