Parenting Upward

Understanding Medicare: Hospital observation vs. Hospital admittance


Medicare pays for skilled nursing after hospital admittance, but not after hospital observation.

In these financially perilous times everyone everywhere seems as if they are trying to save money, and that includes the Medicare program. However, this drive toward cost cutting can be very expensive for seniors and their caregivers if they don’t understand the differences in terminology used by providers and Medicare.

Understanding medicare can seem like a full time job. So today, we want to focus on the difference between being in the hospital for observation, versus actually being admitted to the hospital. They may look the same, your loved one may be in a hospital room, in a hospital gown, wearing a hospital bracelet and eating hospital food, but they may be classified as “under observation”.

This distinction is important when it comes to how Medicare will pay for rehabilitation or skilled nursing services. This is because coding patients under observation technically makes them outpatients.

When a patient has been admitted to the hospital for at least three full days, Medicare will pick up the cost for the first 20 days in an approved rehabilitation program with a skilled nursing facility. However, If your loved one happened to have been considered an outpatient under hospital observation, they will find that they are responsible for the full cost of any rehabilitation in a skilled nursing facility.

Typically, your parents or loved ones doctor will make the initial call on the admitting status, but the hospital can overrule them.  According to a Brown University study of Medicare claims, these practices of admitting patients under observation over admittance has seen a sharp increase between 2007 and now, largely due to hospitals wanting to protect themselves from penalties for re-admissions of the same patients, say critics.

At it stands, hospitals can change a patient’s status to “in observation” at any time, even retroactively; and there is no requirement that the hospital inform the patient or their care giver of their status until they are ready to leave the hospital.

These practices have not escaped notice. The Center for Medicare Advocacy has filed a class action lawsuit against the federal government, alleging that the current state of affairs denies patients  post hospital care and also forces their coverage to come from Medicare Part B (doctors services and out patient care) instead of Part A (hospital insurance); which can mean higher co-pays. Medigap supplemental insurance can help offset many costs left up to patients, but it will not pay out of pocket cost of services that Medicare does not cover.

How can you help your loved one avoid such a situation if they find themselves facing a hospital stay?

  • Speak to your loved ones primary care physician and ask them about the status. If your loved one is considered under observation, ask if/why it is justified at this time. If they agree that observation status does not make sense, then enlist them as an advocate to peak to the hospital and explain the medical reasons why your loved one should be admitted.
  • Be sure to ask the hospital care provider about your loved ones status each day, as it can be changed at any time.
  • If you find that your loved one is  “in observation”, then ask your hospital doctor to reconsider or refer you to the hospital committee that can decide status.
  • If you or your loved one ends up having to pay for skilled nursing out of pocket, you can try to formally appeal to Medicare.
    •  When your loved one receives their quarterly Medicare Summary, highlight the facility charge you are concerned about and send it with a letter saying you want to appeal the no coverage decision based upon that your loved one should have been an inpatient vs. under observation.
    •  It may help to have any documentation you can provide, such as documentation from your loved ones primary care provider to help assist your claim.
    • Finally, don’t give up! If this first appeal is denied then you can escalate it by following the additional appeal instructions on the denial letter from Medicare.
  • If you would like more information on caring for your loved one or parent, the basics of Medicare, and how to talk to your loved ones doctor check out our free Parenting Upward Guide!