Knowing the distinction between observation care and inpatient care (admitted patient) is important for seniors. If you have not been admitted to the hospital for at least three consecutive days (two midnights) you are not eligible for follow-up nursing home coverage and may have higher out-of-pocket expenses while in the hospital. Furthermore, drugs that you receive during observation care are not covered – you are charged full retail value of drug.
Under the rules, Medicare picks up the whole tab for the first 20 days in an approved skilled nursing facility for rehab or other care, but only if someone has spent at least three full days (two midnights) in the hospital as an admitted patient. If instead a patient has been under observation — for all or part of that time — he or she is responsible for the entire cost of rehab.
How does this affect me if I have a Medicare Supplement policy?
Medicare Supplement insurance does not pay the out-of-pocket costs of services that Medicare does not cover. Had you been admitted as an inpatient Medicare would cover 80% of the bill and your Supplement would cover the leftover 20%. However, since you are only under observation Medicare does not cover “observation care”. This means your Supplement coverage is not triggered and will not pick up the tab.
Thus the importance of knowing your status (admitted inpatient vs “under observation”).
What is observation status vs. inpatient status?
When you’re put in the hospital, you’re assigned either inpatient status or observation status. You’re assigned inpatient status if you have severe problems that require highly technical, skilled care.
You’re assigned observation status if you’re not sick enough to require inpatient admission, but are too sick to get your care at your doctor’s office. Or, you might be assigned to observation status when the doctors aren’t sure exactly how sick you are. They can observe you in the hospital and make you an inpatient if you become sicker, or let you go home if you get better.
The lines between admitted inpatient and observation status are blurry at best. Again, you’re in the best position if you ask the provider or hospital before any care is received.
Why should observation status v. inpatient status matter to me?
A. Avoid headaches and billing hangups down the road.
If you’re an inpatient, but Medicare or your health insurance company determines that you should have been assigned observation status, it can refuse to pay for the entire inpatient hospital stay. You probably won’t discover this until the hospital has submitted the claim and had it denied by the insurance company weeks or even months after your hospitalization.
In fact, the Centers for Medicare and Medicaid Services contracts companies to audit Medicare patients’ hospitalization records in an effort to find inpatient admissions that could have been handled in observation status. This happens months or even years after-the-fact. Then, Medicare takes back all the money it paid the hospital for that admission.
Hospitals try to follow the guidelines closely since that’s the easiest and most universally accepted way to justify why they assigned you that particular status. For example, if your health insurance company or Medicare denies your claim because it determined that you should have been in observation status rather than inpatient status, the hospital will fight that denial by showing that you met guidelines for the status you were assigned. If the hospital doesn’t follow the guidelines closely, it risks claim denials.
B. You may take a financial hit if assigned to observation rather than inpatient/admitted status.
If you’re assigned to observation status rather than inpatient status, although it’s less likely your insurer will deny your entire claim, you’ll still take a financial hit. Usually, your share of cost for outpatient services is larger than your share of cost for inpatient admissions.
Since observation patients are a type of outpatient, their bills are covered under Medicare Part B or the outpatient services part of their health insurance policy, rather than under the Medicare Part A or hospitalization part of their health insurance policy. Outpatient coverage usually has higher coinsurance rates than inpatient coverage. So, you’ll end up paying a larger portion of the bill for observation services than you would have paid for inpatient services.
C. Medicare may not cover your SNF (skilled nursing facility) costs.
Observation status might also cost you more if you need to go to a nursing home for rehabilitation after your hospital stay. Medicare usually pays for services like physical therapy in a nursing home for a short period of time. But, you only qualify for this benefit if you’re been an inpatient for three days. If you’re in observation status for three days, you won’t qualify.
This means you’ll have to pay the entire bill for the nursing home and its rehab services yourself. You can expect this bill to be several thousand dollars.
D. Prescription drugs are not covered as an outpatient/observation care.
Even though your Medicare Supplement and Part D or Medicare Advantage (MAPD) plan covers your medical and drug expenses, the policy does not pay for drugs administered or received while under observation care since it is considered an outpatient service.
Additionally, Medicare doesn’t pay at all for routine drugs that observation patients need for chronic conditions such as diabetes, high blood pressure or high cholesterol – drugs that observation patients can buy on their own or bring from home. Medicare also has no rules for what hospitals can bill for non-covered drugs, so they can charge any amount. Again, leaving the patient with a heft bill.
Due to these potential costs, it is important for the patient to ask the provider and hospital what his or her status is. Knowing your status could mean the difference between zero medical costs and financially ruining costs. Be sure to find out before you are put in a troubling spot.