If you are hospitalized, the determination whether you are categorized as an inpatient or as observation status is vital. Even if you stay in the hospital overnight, hands shutterstock_140404582you may still be considered an outpatient with observation status. Your status as an inpatient or outpatient effects how much you pay out-of-pocket for hospital services. Equally important, it effects whether Medicare will later cover your care in a skilled nursing home facility.

I was flabbergasted when one of my parents was hospitalized and a determination was made that my parent was an outpatient with observation status even though she was hospitalized overnight. The financial impact is substantial. You are an outpatient with observation status if you receive hospital services provided to help the doctor determine if  you actually need to be admitted as an inpatient. Again, while to me it makes little sense, this rule applies even if you are a hospital inpatient pursuant to your doctor’s orders.

These provisions substantially impact everyone, but particularly Medicare recipients. Medicare Part A covers inpatient hospital services. As a general rule, an inpatient pays a one-time deductible for the first 60 days of hospitalization. Medicare Part B pays most of your physician’s services when you are an inpatient. You pay 20% of the Medicare approved amount for physician services after paying the Part B deductible.

If you are determined to be a patient with observation status, payments are limited. You pay a co-payment for each individual service received at the hospital. Prescription and over-the-counter drugs are not covered. You will likely need to pay out-of-pocket for these prescriptions and submit a claim to your drug plan for a refund. www.medicare.gov/publications  For example, if you are admitted into the hospital with chest pain and the hospital keeps you two nights for observation services, you are classified as an outpatient and Medicare A pays nothing. Medicare Part B, subject to co-pays, will pay physician’s services and hospital outpatient services.

This is also a significant determination, ie., whether you are classified as inpatient or outpatient with observation status, because of the impact on skilled nursing facility care. Medicare Part A will only cover care at a skilled nursing facility if you have been a hospital inpatient for at least three days in a row, counting the day you were admitted as an inpatient, but not counting the day of your discharge.  If you don’t have a three day inpatient hospital stay and you need care after discharge from the hospital, Medicare Part A will not cover.

This entire analysis seems to contradict Medicare guidelines which recommend that observation stays be no longer than 24 hours and only “in rare and exceptional cases” extend past 48 hours. Consumer Advocates take the position that the “observation status” practice unfairly shifts cost to patients.

For further information or help:

  • On Part A and Part B coverage, read your “Medicare & You” handbook or call 1-800-MEDICARE (1-800-633-4227), TTY users should call 1-877-486-2048.
  • About coverage of self-administered drugs, view the publication “How Medicare Covers Self-Administered Drugs Given in Hospital Outpatient Settings” by visiting www.medicare.gov/publications or call1-800-MEDICARE for a free copy.
  • To ask questions or report complaints about the quality of care of a Medicare-covered service, call your Quality Improvement Organization (QIO). Call Medicare 1-800-MEDICARE to get the phone number. You can also visit www.medicare.gov/contacts.
  • To ask questions or report complaints about the quality of care or the quality of life in a nursing home, call your State Survey Agency. Call 1-800-MEDICARE to get the phone number. You can also visit www.medicare.gov/contacts.

If you or a member of your family find yourself in this catch 22, know that you can appeal the determination of observation rather than inpatient status. Contact an experienced elder care attorney for assistance. Attorney Lisa M. Vanden Heuvel at Vanden Heuvel & Dineen, S.C. is able to guide you through the process.