Medicare and 'Under Observation' Hospital Status

Posted by Steve May 15, 2014

Just recently, an independent resident of ours with a history of back pain fell in her apartment and complained of pain upon movement.  She was quickly taken to a nearby hospital for observation where it was determined that she would need to find a skilled nursing and rehab facility due to the advanced level of care she would now require.  Faced with the elevated costs of long term skilled care, the family was presented with another surprise.  It turns out that mom was never admitted to the hospital as an inpatient but rather held under observation.  Because of this designation, her Medicare Part A coverage cannot be used to cover the hospital visit.  Instead, hospital medications must be paid out of pocket and her outpatient services will be covered at a much reduced rate (with no cap) under Medicare Part B.  Furthermore, for Medicare to cover 20 days of her rehabilitation, she needed to have spent at least three consecutive nights in the hospital as an inpatient.

Under observation status, doctors have time to evaluate patients before determining inpatient care.  Recently however,  Medicare regulators have become much more involved in auditing doctors and hospitals and penalizing them for admitting patients they feel should qualify for outpatient care.  As a result, hospitals are not only subject to financial penalties through patient reimbursements, but may also become targets for more aggressive future audits.  Doctors are more frequently finding themselves in the uncomfortable position of trying to accommodate patient, hospital and auditor.  New Medicare rules which took effect on October 1st, 2013 state doctors should only admit as inpatients those who they feel will need to stay in the hospital two or more nights, and a three night minimum for rehab patients.

What can you do?                                                                        

Believe it or not, hospitals are not required to inform patients of their inpatient or observation status.  Those with Medicare coverage should inquire whether they're inpatients or outpatients.  Especially for those requiring rehabilitative services, it is important to consult with the attending physician and to ask for their help in changing your status if necessary prior to discharge.  For further information, click on the following link below:

Self Help Packet for Medicare Observation Status


Additional Sources:

Wall Street Journal, Anne Tergesen, October 19, 2013,

Kaiser Health News, Susan Jaffe, May 2, 2013,                                          







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