Lan Zhao, Ph.D.

March 15, 2013

Lan Zhao, Ph.D., is a senior research scientist at the Center for Health Research and Policy at Social & Scientific Systems, Inc. (SSS).  SSS provides technical, research, and program management support to the government and other clients for the betterment of global public health.  Dr. Zhao has more than 10 years of experience in health policy research and quantitative analysis.  Her research interests include access to care for vulnerable populations, health insurance coverage, and the impact of insurer payment policies on the delivery of services and health care expenditures.  Dr. Zhao’s most recent research has focused on the comparison of access to care among Medicaid enrollees, the privately insured and uninsured populations.  Other recent research by Dr. Zhao has examined trends in health care spending among privately insured residents in Maryland, and quality improvement in rural hospitals.  Her research has been published in Health Affairs, the American Journal of Medical Quality, and the Journal of Rural Health.

Dr. Zhao received a Ph.D. in economics from the University of Maryland with a focus on industrial organization and econometrics.  Prior to joining Social and Scientific Systems, Dr. Zhao held research and analyst positions at the World Bank, Project HOPE, and the National Opinion Research Center (NORC).

In Dr. Zhao’s HCFO-funded grant, she and her colleagues examined Medicare observation services to inform policymakers on the use of these services and their impact on beneficiaries. Observation services provide an opportunity to evaluate the condition of an outpatient and assess the need for an inpatient admission. Contrary to some beneficiaries’ assumption that they are hospital inpatients when under observation because the services are rendered in a hospital setting, observation services are considered outpatient services and are thus covered under Medicare Part B.  This may lead to higher out-of-pocket cost burden on beneficiaries than if observation services were covered under Part A. With an inpatient stay, the beneficiary is only responsible for the inpatient deductible and all prescription drugs received during the stay are covered under Part A. For OS, however, beneficiaries face Part B coinsurance and copayments for all covered services and must generally pay hospital prices for routine prescription medications—“self-administered” drugs—which are unrelated to the treatment received while under observation care.  Moreover, time spent under observation is not counted toward the 3-day prior hospitalization requirement for Skilled Nursing Facility (SNF) coverage under Medicare, thus making it more likely for a beneficiary to be liable for higher out-of-pocket cost for SNF care.

Dr. Zhao and colleagues found that from 2001-2006 there was an increasing trend in the use of observation services, which often took the place of one-day inpatient stays. Some beneficiaries incur unwarranted high costs due to their stay in OS being categorized as an outpatient service, rather than an inpatient stay and subsequently failing to qualify for SNF.  Although this subset of beneficiaries represents the use of less than 10 percent of observation services, the potential for high out-of-pocket spending for these beneficiaries could be substantial under the current reimbursement structure. This work can inform legislative action to allow days spent in observation services to count toward the three-day prior inpatient stay requirement for SNF coverage, thus eliminating the threat of greater out-of-pocket spending once discharged to a SNF. For more information about Dr. Zhao and her HCFO-funded work, please visit the HCFO website.