Going to the hospital is a stressful and potentially frightening experience. Before you have a hospital stay, it’s important that you and your loved ones know how your status (observation vs inpatient) can affect your hospital bills.
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Medicare Hospital Benefits
Medicare coverage for an inpatient hospital stay is pretty clear. You pay the Part A deductible of $1,484, and after that is reached, Medicare covers all inpatient costs during a stay of up to 60 days per Benefit Period.
Medicare Part B pays for approximately 80% of your inpatient doctor services after you pay the annual deductible of $203.
However, what if you are in the hospital but you aren’t classified as an inpatient?
Here we enter the murky world of observation.
What is Observation?
Observation services are hospital outpatient services you get while your doctor decides whether to admit you as an inpatient or discharge you.
Sometimes you receive observation services in the emergency room, but you can also be in a regular hospital room, and even spend a night in the hospital, and still be under observation.
Ask about your status
Every day that you are in the hospital, you or a loved one should ask the hospital and your doctor whether you are there for observation as an outpatient or have been admitted as an inpatient.
Even if you stay overnight in a regular hospital bed, you may still be an outpatient, so you or your advocates must be diligent in questioning the hospital about your status.
Medicare Outpatient Observation Notice (MOON)
You may receive a Medicare Outpatient Observation Notice (MOON) that tells you you’re an outpatient while in a hospital. If you are under outpatient observation for more than 24 hours, the hospital must provide you with a MOON.
The MOON will tell you why you’re an outpatient getting observation services, instead of an inpatient. It will also let you know how this may affect what you pay while in the hospital, and for care you get after leaving the hospital.
What difference does observation make to your costs?
If you have Medicare Parts A and B and no other coverage and are in the hospital as an outpatient under observation, all of your claims will be paid under Medicare Part B.
That means that after paying the Part B annual deductible, which is $203 in 2021, you will be responsible for 20% of the cost of the services you receive while under observation with no cap on how much that 20% can add up to.
Depending on the tests run and services you need, your time under observation could add up to more than the Part A deductible cost of $1,484, which is what you would owe if you were an inpatient.
Most people do not just have Medicare Parts A and B.
How does observation vs inpatient status affect your costs if you have Medicare Parts A and B and a Medicare Supplement?
After the Part B deductible is met, all Medicare Supplement plans will pay some portion of the Part B coinsurance of 20%. Most Medicare Supplement plans pay all the Part B coinsurance. However, Plan K only covers 50% of Part B coinsurance, and Plan L only cover 75% of it, and Plan N has a $20 co-pay.
What about coverage for observation with a Medicare Advantage plan?
This is something to check in the plan’s Evidence of Coverage document before you enroll. Usually, outpatient services while in a hospital are covered with a copay structure, so you will owe a copay for each service or test performed up to the annual maximum out-of-pocket spending limit.
What difference does observation make to your Medicare coverage if you need to move to a Skilled Nursing Facility?
Medicare pays for days 1 through 20 of Skilled Nursing Facility care with a daily copay cost to you of $0 per day. For days 21 through 100, you are responsible for a coinsurance charge of $185.50 per day.
To qualify for the Medicare Skilled Nursing Facility benefit, you must first be admitted to the hospital on an inpatient basis for three consecutive days before being transferred to a Skilled Nursing Facility.
If you stay in the hospital under observation status, Medicare won’t cover Skilled Nursing Facility care. This is the case even if, for example, you spend a day in the hospital under observation status, then you’re admitted on an inpatient basis for two days, and then moved to a Skilled Nursing Facility.
Why do hospitals keep Medicare beneficiaries under outpatient observation?
Medicare sets the criteria hospitals use to admit inpatients under Medicare Part A. Medicare auditors sometimes deny hospital inpatient claims if the auditor judges the patient’s condition didn’t require an inpatient admission.
Because inpatient stays are generally more than twice as expensive as outpatient hospital stays to the Medicare program, Medicare has a financial incentive to deny inpatient claims. This causes hospitals to be more cautious about admitting Medicare beneficiaries.
Instead, Medicare patients are kept under observation as outpatients in hospitals because claims under Medicare Part B for observation are far less likely to be questioned and denied by auditors.
Can you appeal your classification as an observation patient?
Thanks to a federal court ruling in March of 2020, Medicare beneficiaries can appeal their observation classifications and request Medicare pay for denied Skilled Nursing Facility care going back to 2009 if they had a hospital stay of at least three days and part of that stay was classified as observation.
After you are discharged from the hospital, you can use your MOON, along with other documentation, such as a statement from your doctor, to support an appeal of your observation status.
Observation vs Inpatient status is a confusing Medicare issue. If you aren’t sure how your current Medicare plan covers this situation, feel free to reach out to our office at 877-312-1414.
We’re here to educate you so that you can make informed decisions and find the best Medicare coverage for your unique situation.
Confused about your Medicare coverage options? Watch our free video: How to Find the Best Medicare Coverage Without Paying More Than You Need To…
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