The Center for Medicare Advocacy has a self-help packet on its website that explains the observation-status issue in detail, and provides detailed guidance for filing appeals at http://bit.ly/KTa5LJ.
Hospitalized But 'Under Observation'? Seniors, Beware
January 24, 2014
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This may be an example of unintended consequences. Medicare payments to hospitals are, to a certain extent, influenced by the number or re-admissions for the same condition. In order to avoid being penalized, hospitals don't admit; they then cannot be penalized for a high number of re-admissions; an indicator or inappropriately early release. The intent is good; improve the quality of care. There are just lots of people out there who look for ways around government rules.