Hospital stays can be confusing, especially when patients are given a label like “Observation Status” rather than being formally admitted. The purpose of this status is to allow medical staff time to monitor a patient, conduct tests, and determine if a full inpatient admission is necessary or if they can be safely discharged home. How a hospital stay is classified carries serious implications for both the care received and the resulting financial obligations.
Defining Hospital Observation Status
Observation Status is defined as a set of specific, clinically appropriate services provided to a patient whose condition is uncertain, requiring monitoring and assessment. This status is considered an outpatient service, even if the patient is occupying a hospital bed. The classification allows physicians to determine if a patient’s condition will stabilize or require more intensive care.
The duration of an observation stay is typically short-term, often lasting less than 48 hours. During this period, the patient receives diagnostic testing, treatments, and ongoing reassessment to inform the final decision regarding their level of care. If the patient’s condition improves, they are discharged; if the condition deteriorates or requires an extended stay, they are generally admitted as an inpatient.
Observation Versus Inpatient: The Distinction
The difference between Observation Status and Inpatient Admission is based on the physician’s expectation of how long the patient will need medically necessary hospital care. An inpatient admission is generally deemed appropriate when a patient is expected to require hospital care that spans at least two midnights, a guideline often referred to as the “Two-Midnight Rule.” Observation Status, conversely, is used for patients whose treatment and recovery are expected to take less than this time.
The patient’s physical location within the facility, such as being in a hospital room, does not determine their official status; the billing designation does. Hospitals rely on standardized, evidence-based criteria, such as InterQual or Milliman guidelines, to help physicians make this determination. Utilization review staff within the hospital monitor these cases closely to ensure the patient’s status aligns with the medical necessity guidelines, sometimes leading to a change in status from observation to inpatient or vice versa.
The Financial Impact on Patients
The classification as Observation Status has a significant and direct impact on a patient’s out-of-pocket costs, particularly for those covered by Medicare. Observation services are billed under Medicare Part B, which covers outpatient care, rather than Medicare Part A, which covers inpatient hospital care. This distinction can result in higher co-payments and deductibles for the patient, as Part B typically requires beneficiaries to pay 20% of the Medicare-approved amount for most services.
Furthermore, being in observation status can jeopardize coverage for post-hospital care in a Skilled Nursing Facility (SNF). Medicare coverage for an SNF stay requires the patient to have had a qualifying hospital stay of at least three consecutive days as a formally admitted inpatient. Time spent under Observation Status, even if it lasts for multiple days, does not count toward this three-day inpatient requirement. If a patient needs SNF care, they may be responsible for the entire cost of the nursing facility.
Understanding Patient Rights and Appeals
Patients receiving observation services for more than 24 hours must be informed of their status through a standardized document. The hospital must provide the Medicare Outpatient Observation Notice (MOON), which is Form CMS-10611, no later than 36 hours after the observation services begin. This notice explains that the patient is an outpatient, the reasons for that determination, and the financial implications regarding cost-sharing and eligibility for SNF coverage.
The MOON must be provided along with an oral explanation to ensure the patient understands the details of their classification. While patients initially classified as observation status do not have a formal appeal right to challenge the designation, they can seek recourse if they were initially admitted as an inpatient and later had their status reclassified. An appeal of a reclassification can be made through the Beneficiary and Family-Centered Care Quality Improvement Organization (BFCC-QIO), which reviews the status determination.