Center for Medicare Advocacy

Advancing Access to Medicare and Healthcare

Outpatient Observation Status

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The Center is part of a coalition of organizations fighting the continued harm caused by Observation Status through advocacy and education, efforts which will be greatly enhanced by our work with the John A. Hartford foundation.

In addition, the Center for Medicare Advocacy, along with co-counsel Justice in Aging and Wilson Sonsini Goodrich & Rosati, litigated a nationwide class action lawsuit, Alexander v. Becerra, that established the right for certain beneficiaries to appeal placement on observation status to Medicare. For more information, see:

Hospital Observation Status

Observation Status is a designation used by hospitals to bill Medicare. Unfortunately, it can hurt hospital patients who rely on Medicare for their health care coverage.

People who receive care in hospitals, even overnight and for several days, may learn they have not actually been admitted as inpatients. Instead, the hospital has classified them as Observation Status, which is an “outpatient” category. This designation can happen even for people who are extremely sick and spend many days in the hospital.  For example, we have heard from people with recent hip and pelvic fractures who were designated as Observation Status.

Since March 8, 2017, hospitals have been required to give patients the Medicare Outpatient Observation Notice (MOON) within 36 hours if the patients are receiving “observation services as an outpatient” for 24 hours. Hospitals must also orally explain observation status and its financial consequences for patients. The MOON cannot be appealed to Medicare. (See a sample MOON)

Why does this matter?

When hospital patients are classified as outpatients on Observation Status, they may be charged for services that Medicare would have paid if they were properly admitted as inpatients. For example, patients may be charged for their medications. (Thus, people may want to bring their medications from home if they have to go to the hospital.)

Most significantly, patients will not be able to obtain any Medicare coverage if they need nursing home care after their hospital stay. Medicare only covers nursing home care for patients who have a 3-day inpatient hospital stay – Observation Status doesn’t count towards the 3-day stay.

Outpatient Observation Status is paid by Medicare Part B, while inpatient hospital admissions are paid by Part A.  Thus, Medicare beneficiaries who are enrolled in Part A, but not Part B, will be responsible for their entire hospital bill if they are classified as Observation Status.

More Details on Observation Status – When is a Hospital Stay Not a Hospital Stay?

The Medicare statute and regulations authorize payment for skilled nursing facility (SNF) care for a beneficiary who, among other requirements, was a hospital inpatient for at least three days before the admission to the SNF.  The Center for Medicare Advocacy has written before about difficulties in calculating hospital time for purposes of using Medicare’s post-acute SNF benefit.  In the past, the Center’s primary focus was how time in observation status and in the emergency room was not counted by the Medicare program when that time was followed by a beneficiary’s formal admission to the hospital as an inpatient.

The Center has also heard repeatedly about beneficiaries throughout the country whose entire stay in a hospital, including stays as long as 14 days, is classified by the hospital as outpatient observation.  In some instances, the beneficiaries’ physicians order their admission, but the hospital retroactively reverses the decision.  As a consequence of the classification of a hospital stay as outpatient observation (or of the reclassification of a hospital stay from inpatient care, covered by Medicare Part A, to outpatient care, covered by Medicare Part B), beneficiaries are charged for various services they received in the acute care hospital, including their prescription medications.  They are also charged for their entire subsequent SNF stay, having never satisfied the statutory three-day hospital stay requirement.

Such was the case for Center client Lee Barrows and her husband:

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