Are you Being “Admitted” to the Hospital?

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OR … just “Observed”?

Brian J. Knabe MD

By Brian J. Knabe, MD, CMP©, CFP®

Savant Capital Management


Much attention has been given in recent months to the unintended consequences of healthcare rules and laws.  Most of this has centered on the Affordable Care Act—employers discontinuing health plans for their employees, individuals being dropped from their privately purchased insurance, and other ill effects.  One subject that has not received much press, but which may affect many seniors, is changing rules for Medicare.


Patients usually assume when they spend a night or more in a hospital that they have been “admitted.”  However, this is often not the case.  Medicare regulations and statutes require physicians and hospitals to predict at the time of initial hospitalization how long a patient will stay in the hospital.

A short stay—for a night or two– is classified as “observation,” while a longer stay can be classified as an “admission.”  While the difference between these may not be a primary concern for a sick patient wanting to receive necessary evaluation and treatment, it can make a significant difference for your pocketbook.

Observation status

Observation status is considered “outpatient” treatment, and as such can expose Medicare patients to unexpected expenses.  As outpatients, visits under observation status are not covered under Medicare Part A, which pays for hospital charges above a $1,184 deductible.  These outpatient services are billed under Medicare Part B, which requires patients to pay 20% of the cost and imposes no cap on their total out-of-pocket expenditures.

Moreover, observation patients must pay out of pocket for the medication they receive in the hospital.  Those with Medicare Part D prescription-drug plans can file claims for reimbursement, but they may receive little or no refund if their Part D plan doesn’t cover those specific medications.


Another unexpected consequence of hospital observation is subsequent nursing home coverage.  A stay in a Skilled Nursing Facility (SNF) is often covered by Medicare, as long as certain criteria are met.  One of those criteria is whether the SNF stay was preceded by a “qualifying hospital stay.”  An admission to a hospital might meet this criterion, but an observation stay will not, even if it extended for a number of days.  When a patient who meets Medicare’s admission requirement moves to a SNF, the program covers 100 percent of the first 20 days.  Patients are responsible for $152 daily co-pays for the next 80 days, if necessary.  On the other hand, patients leaving the hospital for a SNF after an observation stay pay the full cost out of pocket.


According to a recent Wall Street Journal article, from 2004 to 2011 the number of observation services administered per Medicare beneficiary rose by almost 34%, while admissions per beneficiary declined 7.8%.  Why does this difference between admission and observation matter to hospitals?  It comes down to payment.  Hospitals are reimbursed less for outpatient services.  However, if it is determined after a hospitalization that a patient should have been kept under observation rather than admitted, Medicare will often deny payment to the hospital for the entire bill.  So hospitals are motivated to get it right, at least according to Medicare regulations.

hospital bills

What  to Do?

So, what can you do to protect yourself as a patient?  At the time of hospitalization, ask your physician whether you are being admitted or kept under observation.  Ask to speak to a case manager about the proper status of the hospital stay.  Ask your doctors if they suspect that rehabilitation services will be needed after the hospitalization, and if so, request their help in getting the decision to “observe” reversed prior to hospital discharge.


For additional help, see the “Self Help Packet for Medicare Observation Status” at

See more at: 


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