Hospitals with readmission rates above the national average now receive lower payments across-the-board from Medicare; the higher the rate of "excess" readmissions, the greater the penalty. The fines are intended to push hospitals to provide better care for their patients both in and out of the hospital, to avoid having patients return.
However, when patients do return to the hospital, the policy may unintentionally encourage hospitals to keep them "under observation" to circumvent the penalties. Although observation patients often receive care in a hospital’s inpatient unit, patients "under observation" are considered to have outpatient status under Medicare’s rules; they are not formally admitted to the hospital. It is a subtle difference, but one that may have significant financial consequences for some patients.
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