The classification a hospital assigns to a patient, known as Observation Status, carries significant financial implications, particularly for Medicare beneficiaries. This status designates a patient as an outpatient, even if they occupy a hospital bed for an extended period. Understanding this distinction is the first defense against unexpected bills and lack of coverage for post-hospital care. This article provides actionable steps to help patients and advocates navigate the complexities of hospital status assignment.
Understanding Observation Status and Financial Consequences
The difference between being admitted as an Inpatient and being placed in Observation Status determines how Medicare covers the services received. Inpatient status is covered under Medicare Part A, requiring the patient to pay a single deductible for the entire hospital stay. Observation Status, however, is considered an outpatient service covered under Medicare Part B.
This outpatient classification means the patient may be responsible for a copayment for each individual service received, such as blood tests, X-rays, or procedures. Patients on Observation Status are also responsible for a 20% coinsurance for physician services. Furthermore, prescription drugs administered in the hospital are often not covered by Part B, leading to substantial out-of-pocket costs for medications.
The most significant financial consequence of Observation Status relates to subsequent Skilled Nursing Facility (SNF) coverage. Medicare Part A only covers a post-hospital SNF stay if the beneficiary has had a “qualifying hospital stay,” which requires at least three consecutive days as a formally admitted Inpatient. Time spent under Observation Status, regardless of how long the patient is there, does not count toward this three-day minimum.
Failing to meet the three-day inpatient requirement means Medicare Part A will not pay for the SNF stay. This leaves the patient responsible for the entire cost of skilled nursing care, which can result in tens of thousands of dollars in unexpected bills. This distinction motivates patients to advocate for Inpatient admission when appropriate.
The Criteria Hospitals Use for Status Assignment
The mechanism hospitals use to determine a patient’s status is the “2-Midnight Rule,” established by the Centers for Medicare & Medicaid Services (CMS). This rule states that Inpatient admission is appropriate and payable under Medicare Part A when the admitting physician expects the patient to require a medically necessary hospital stay spanning at least two midnights. The decision relies on the physician’s documented expectation at the time of the admission order, not the actual length of the hospital stay.
If the physician expects the necessary hospital stay will be less than two midnights, or if medical necessity is uncertain, the patient is typically placed in Observation Status. The physician’s expectation is guided by the patient’s clinical situation, including the severity of illness and the complexity of services required. Status may be changed from Observation to Inpatient if the condition worsens and the physician then expects the stay will cross the two-midnight benchmark.
The medical record must support the physician’s expectation for the stay to be covered. If a patient is admitted as Inpatient but improves rapidly and is discharged before the second midnight, the stay may still be covered if the initial expectation was reasonable. The hospital’s internal utilization review committee may review and challenge the physician’s initial admission order if documentation does not support the two-midnight expectation.
Patient Advocacy During a Hospital Stay
Effective patient advocacy begins immediately upon arrival at the hospital. The most direct action is to ask the attending physician or a member of the care team for a clear statement of the assigned status: “Am I admitted as an Inpatient or am I under Observation Status?” This immediate inquiry establishes the patient’s classification and its financial implications.
If the patient is placed in Observation Status for more than 24 hours, the hospital must deliver the Medicare Outpatient Observation Notice (MOON) form (CMS Form 10820). This notice must be provided no later than 36 hours after observation services begin. It explains that the patient is an outpatient and details the financial consequences, particularly concerning SNF coverage. The patient or their representative must also receive an oral explanation of the notice.
Signing the MOON form only confirms receipt of the notice; it does not indicate agreement with the Observation Status classification. If an advocate believes an Inpatient admission is medically necessary, they should sign the form to acknowledge receipt but also document their objection to the status. If they refuse to sign, the hospital staff will document the refusal, and the notice is still considered delivered.
If the status is disputed, the patient or advocate should request a review by the hospital’s utilization review committee. This committee ensures the patient’s status aligns with Medicare guidelines. Patients can ask to speak with a representative from the utilization or discharge planning department to formally request that the physician’s order be changed to Inpatient status. Documenting all conversations, including staff names, titles, dates, and times, provides a record for any subsequent appeal.
Options for Reviewing Status After Discharge
If a patient is discharged after being classified under Observation Status and faces significant unexpected bills, particularly for an uncovered SNF stay, options for retroactive review exist. The first step is seeking a review of the classification, often called a status change review, which involves appealing the hospital’s decision to classify the stay as outpatient.
A formal process exists for Medicare beneficiaries who meet specific criteria: those initially admitted as Inpatients but later changed to Observation, or those who had a stay of three or more days but were Inpatient for less than three days. This process is relevant if the patient required SNF care within 30 days of discharge. A specific form, the “Request for Retrospective Appeal Medicare Part A” (CMS-10885), must be filed with the Medicare Administrative Contractor.
The patient must submit documentation, including medical records and bills, to support the claim that an Inpatient admission was medically appropriate. If the initial appeal is unsuccessful, the patient can proceed through the general Medicare appeals process. This includes requesting a reconsideration from a Qualified Independent Contractor (QIC), which is the second level of appeal.