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Hospital Stay & Observation Status: What You Need to Know

You are feeling ill and you aren’t quite sure how serious it is. You might have pneumonia, you might have the flu, or perhaps it’s something even worse. When you arrive at the ER, the doctors perform a variety of tests, have you fill out admission paperwork and put you into a room. At this point, you probably assume you are officially an inpatient, and you will receive Medicare benefits accordingly—including coverage of the doctor-recommended stay at a nursing home or rehabilitation services when you are discharged. Not so fast. There’s something called observation status, and you need to know about it:

Observation Status Explained

In short, observation status is when the doctors aren’t quite sure if your condition is serious enough to warrant admission, yet they don’t feel safe sending you home. To you, it looks like you are admitted. You still receive the regular medications and nurse check-ups, and unless you ask, you may not even know you were never technically admitted.

Why The Hospital Won’t Just Admit You

If you aren’t well enough to send home, it would seem like the hospital should just admit you. There shouldn’t be a middle ground. But hospitals have to be very careful if they want to be reimbursed by Medicare for their services. If an auditor feels like a patient should have received outpatient care instead of being admitted, the hospital will be penalized and risk no repayment. So it is understandable that they are cautious.

What Observation Status Means For You

First, your status in the hospital determines which part of Medicare the services fall under. If you are an outpatient—or in observation status—you are billed according to the rules of Medicare Part B, which means you will be responsible for 20% of the services you receive, with no out-of-pocket maximum. If you are an inpatient, you are only susceptible to the $1,184 deductible, as reported by the Wall Street Journal.

But it doesn’t end with your hospital bill. If your doctor recommends rehabilitation services or a stay at a nursing home, you will only receive coverage from Medicare if you were an inpatient for three consecutive nights. So if you never made it out of observation status before being discharged, your claim will be denied. Even if you were in observation status for two nights and then were admitted for two nights, you will still not be covered.

Your Options Regarding Observation Status

According to Kaiser Health News, there is no Medicare regulation requiring hospitals to tell you your status (unless you are being downgraded from an inpatient to observation status), so if you don’t ask, you won’t know until the bill shows up. The rooms and care received are virtually indistinguishable in most hospitals, so you need to speak up to find out.

So what do you do if you feel like you should be admitted and the doctor tells you that you are in observation status? Plead your case—especially if rehabilitation or nursing home services are required. But know that even if the doctor takes you out of observation status, the hospital or Medicare can change it when processing your claim.

The good news is that if you feel like your claim was mishandled, you are welcome to file an appeal. The Center for Medicare Advocacy has a self-help packet to walk you through the process.

Posted: March 30, 2015 under blog. Helpful Article. Comments: none