Observation status is a hospital grey area that can mean the difference between Medicare covering 100% of your hospital costs and you paying thousands of dollars out-of-pocket.
Observation status: what it is
Observation status means you’re receiving hospital care, but you haven’t been formally admitted yet. In other words, this technicality means you’re receiving outpatient care, which is not covered by Medicare Part A.
A hospital might hold you on observation status while they’re deciding if you need to be admitted or if you can be treated with outpatient care. They do this because Medicare has a rule that states hospitals may not be reimbursed for the care you receive if you are held for fewer than two nights. Because of this rule, many hospitals opt to hold patients on observation status until they’re certain the patient will be staying for two or more nights. So even if you spend several nights in the hospital, that doesn’t mean the services or medication you receive are covered by Part A.
Financial repercussions
This can be a costly nightmare if you have opted out of Part B coverage. Even if you have Medicare Part B, you could still rack up thousands of dollars for inpatient services that are not covered because of this outpatient technicality.
If you were held in a hospital under observation status and need rehabilitative services after you’ve been discharged, Medicare won’t pay for those services. Rehab in a skilled nursing facility is only covered by Medicare if you are formally admitted to the hospital and kept for at least three nights.
What to do
Ask about your status. If you receive any type of hospital care, ask if you are being admitted or if you are being held on observation status.
Request to be admitted. Ask your doctor to formally admit you so you can receive inpatient care.
Get it in writing. If the hospital insists on holding you under observation status, get this in writing along with an explanation of why you’re not being formally admitted.
