What You Need to Know About Medicare and Observation Status

Think your hospital stay is fully covered by Medicare? Think again if you're on observation status. Under this status, patients can stay in the hospital for days without technically being admitted – and that detail can make all the difference for Medicare.

Linda learned that lesson the hard way. One day, she was enjoying a family picnic when her mother fainted, and was soon after whisked off in an ambulance. Now Linda’s mom remains in the hospital under observation while she undergoes further testing. What Linda may not realize is that her mother’s outpatient status could mean the difference between Medicare covering the hospital services, or her mom being on the hook for a large portion of the cost of her care.

If you or a loved one rely on Medicare to cover medical expenses, it’s important to understand the nuances of observation status. While your status may not affect the quality of care you receive, it will affect your ability to pay for it.

How Medicare sees your observation status

The two parts of Medicare are designed to cover hospital and medical services.

Part A of Medicare covers inpatient hospital services. With this type of coverage, you must pay a one-time deductible that covers all of your care for the first 60 days you’re in the hospital. Patients must have a three-day stay as an inpatient in order for Medicare to cover hospital care and subsequent nursing home expenses. Outpatient status doesn’t count toward the three-day minimum required stay.

Medicare Part B covers the services performed by your doctor as an inpatient. The patient is responsible for at least 20 percent of the costs of physician services after the deductible has been met.

But if you’re classified as an outpatient, your coverage falls under Part B of Medicare. So, instead of having your care totally covered, you are responsible for paying for part of it. And when you’re talking about a hospital bill totaling thousands of dollars, that could add up to a significant expense.

For example, let’s say Linda’s mother, who was sent to the Intensive Care Unit for observation and testing, had been sent home the next day. Her outpatient status means Part A of her Medicare coverage would not have paid for that visit, because she was never admitted. Part B should cover part of the doctor services, but Linda’s mom will need to pay some of the costs incurred while she was in the ICU.

How the hospital sees your observation status

In an effort to avoid unnecessary costs and scrutiny from CMS and Medicare, hospitals have responded by placing patients “under observation.” This allows them to provide care and run tests but relieves them from being penalized for an inappropriate admission. It’s common for a patient to stay overnight, receive testing, medications and intensive care— all while the hospital still considers them an outpatient. And that creates confusion for a lot of patients.

“Staying informed on changes in Medicare and Medicaid programs is important to us. By collaborating with the hospital’s care services team and social workers, we can be sure our health care decisions are in the best interests of our patients both from a health and financial perspective,” said Steve Lish, executive director at Discovery Care Centre in Hamilton, Montana.

How you should see your observation status

As a patient or a patient’s loved one, taking the time to ask more questions can lower the risk of surprises later on. Recent changes to Medicare coverage require hospitals to alert patients of their status. Those changes stipulate that a notice must be provided “to an individual who receives observation services as an outpatient” at a hospital for more the twenty-four hours.

It’s important to remember that any time you spend under observation won’t count toward the three consecutive days a patient must spend in the hospital before Medicare will cover a stay in a skilled nursing facility.

This change to Medicare coverage shouldn’t affect the level of care you receive, but it will impact your out-of-pocket expenses. When in doubt, just ask.

How to protect yourself

Legislators have proposed new changes to Medicare coverage that would allow time in the hospital under observation to count toward the three-day inpatient stay required for Medicare coverage of nursing home care. But until this change is adopted, if you or a loved one is in need of care, take the time to ask questions, understand the policy governing patient status, and get involved in the decision-making process.

In addition, you can also insist that your doctor not place you on observation status. You are ultimately responsible for ensuring you receive care, and you have the power to insist that you’re either admitted or sent home. Otherwise, you may be hit with a staggeringly high hospital bill for the time you were under observation.