How Does Medicare Pay for Hospital Observation?

Medicare categorizes patient care as either inpatient or outpatient. Medicare Part A, sometimes referred to as hospital insurance, covers inpatient hospital services. This means the care you receive after being admitted to the hospital. Medicare Part B, also known as medical insurance, covers outpatient care such as you receive in a doctor’s office. But what happens if you receive care in the hospital without being formally admitted? This is known as hospital observation and it confuses many Medicare beneficiaries.

What Is Hospital Observation?

Also known as observation status, hospital observation encompasses care received in a hospital without being admitted. For example, if you go to the hospital complaining of abdominal pain, you may be placed in a room or bed. This allows the doctor to monitor your condition while performing diagnostic tests to determine the cause of your pain.

According to the Center for Medicare Advocacy (CMA), observation status is mainly a billing designation. Although the standard is less than 24 hours, you can remain in observation status for multiple days.

Why Does Your Status Matter?

If the care you receive is adequate, whether you’re admitted may seem immaterial. However, if you have Medicare, it makes a big difference, particularly when it comes time to pay the bill.

As stated above, Medicare Part A covers inpatient hospital care. The Part A deductible in 2019 is $1,364 per benefit period. For days 1 through 60, you pay $0 in coinsurance. However, if you are in observation status, Medicare Part B applies. In that case, your cost is generally 20 percent of the Medicare-approved amount for any services received. If you do not have Medicare Part B, you are responsible for 100 percent of the costs incurred while under observation.

The average cost for a hospital stay was $3,949 per day in 2017, and $15,734 per stay. If you remain in observation status for multiple days, which many beneficiaries do, those costs can add up quickly. Of course, those are just averages. Your costs may be higher or lower.

If you have Original Medicare and the right Medigap plan (i.e. F or G), you don’t have these same worries. That’s because your supplement plan covers your Part B coinsurance costs.

Prescriptions and hospital observation

Observation status and medications

Another consideration is the cost of medications. Any drugs administered via IV or injection while under observation would normally be covered by Medicare Part B. But medications you could take yourself, i.e. pills, are not. Of course, if you were admitted, Part A would cover the cost of any medications administered. Coverage under hospital observation depends on your Part D prescription drug plan. If you do not have a Part D plan, these costs are yours alone.

Skilled nursing facility care

Another concern is whether your doctor orders aftercare at a skilled nursing facility. Part A covers up to 100 days of skilled nursing care, but only if you have a qualifying hospital stay of three days first. In other words, unless you spend three days as an admitted patient, Part A will not cover skilled care. And Part B never covers it.

The average cost of care in a skilled nursing facility ranges from around $119 per day to around $253. Unfortunately, CMA reports that many patients forego this care when Medicare doesn’t cover it, as they can’t afford the cost.

How Do You Know You’re in Observation Status?

The short answer is, you often don’t know you weren’t admitted. Many patients under observation are given a bed and even a room. They receive the same quality care as admitted patients do and they may be there for two or even three days (and sometimes more).

Hospitals have dramatically increased their use of the observation status billing code, too. In fact, the number of patients kept under observation doubled between 2006 and 2014. Medicare responded to this rise by implementing MOON, Medicare Outpatient Observation Notice, in 2017. If a patient is kept under observation for 24 hours, the hospital has 36 hours to notify them, both orally and in writing. In addition, the hospital must explain the financial consequences of their outpatient status.

hospital observation and moon

It’s important to note that a hospital may retroactively change the patient’s status from admitted to observation. However, they may only do so under the following guidelines:

  • The status change occurs while the patient is still in the hospital
  • No Medicare claim for inpatient admission has been made by the hospital
  • A doctor agrees with the utilization review committee that the patient’s status should be changed to observation
  • That doctor’s agreement must be included in the patient’s medical record

Potential issues with MOON

There are a couple of potential issues with the MOON policy. First, the patient cannot appeal their observation status and ask Medicare to treat their stay as outpatient. But an even bigger issue may be that not all outpatients receive a MOON. If the patient is classified as outpatient instead of observation status, there is no MOON requirement. You can spend multiple days as an outpatient, just as you can under hospital observation.

What Can You Do?

Unfortunately, you cannot demand the hospital admit you. However, you can ask your doctor to admit you as an inpatient. Preferably, you do this early in your stay. Remember, to qualify for covered skilled nursing care, you must have first spent three days as a hospital inpatient. You should also talk to your regular doctor and ask them to support your request.

If you did not receive notice that you were an outpatient, file a complaint with your state health department. For those whose nursing home coverage is denied, you can file an appeal with Medicare.

You can also call one of the licensed agents at Medicare Solutions toll-free at 855-350-8101. We’ll walk you through the steps to request admission instead of hospital observation. We’re also here to answer any questions you have about your Medigap plan options to help cover some of these out-of-pocket costs.

Chris Gasparini

Chris Gasparini

Licensed Insurance Agent at Medicare Solutions
Chris Gasparini has been a licensed insurance agent since 2005. He enjoys helping Medicare beneficiaries navigate their options to find the best solution for their unique needs. Chris feels as though his work truly helps people. Because he represents multiple insurance companies and plan types, Chris is able to help Medicare beneficiaries find the best, most cost-effective plan. Every day, he leaves work knowing he did what was right for each and every client he serves.
Chris Gasparini
Chris Gasparini

Author: Chris Gasparini

Chris Gasparini has been a licensed insurance agent since 2005. He enjoys helping Medicare beneficiaries navigate their options to find the best solution for their unique needs. Chris feels as though his work truly helps people. Because he represents multiple insurance companies and plan types, Chris is able to help Medicare beneficiaries find the best, most cost-effective plan. Every day, he leaves work knowing he did what was right for each and every client he serves.

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