Hospital Observation Beds and
Medicare-Covered Skilled Nursing Stays

Today’s video is prompted by some very conscientious clients who read the Medicare and You handbook cover to cover. Very impressive. They had questions about “observation status” in the hospital which they had never heard of. We’ve copied the relevant section from the handbook and attached it below.

When you are under observation status in the hospital, you are not considered formally admitted even if you have an overnight stay. The hospital submits a Part B claim for this service rather than a Part A claim. Medicare Part A only covers when you are considered an inpatient at the hospital. Being on observation status generally occurs when the medical staff are working to determine if you should be admitted or not although it is clear from the literature that some observation stays are far longer than the short stays expected when on observation.

It is understandable how observation status in a hospital evolved. Medicare has criteria defining which patients should be admitted as inpatients yet other types of patients present themselves at hospitals, especially in Emergency Departments, in terrible discomfort or with families in despair about how to properly care for them at home. Observation status seems a reasonable response to this dilemma.

Although most patients under observation status were discharged back home or to some other community setting, some were discharged to a skilled nursing facility without realizing that Medicare only covers care in a skilled nursing facility if it follows an inpatient stay of three days or more covered under Medicare Part A at the hospital. An observation stay is covered but under Medicare Part B. This led to surprise bills from the skilled nursing facility because so many patients on Medicare don’t understand the benefits and patients are used to signing forms at any visit or admission indicating they will be financially responsible for services their insurance doesn’t cover.

The good news is that we haven’t seen this occur in some time. That doesn’t mean it never occurs but hospitals have been required since 2015 to issue a “Medicare Outpatient Observation Notice” (or MOON) when a patient is on observation for more than 24 hours. We assume nursing home staff are also doing a more effective job of informing patients of when Medicare will pay for inpatient services at their facility.

In sum, it is important to understand when Medicare covers your hospitalization as an inpatient and to understand that you can remain overnight in a hospital for days without being formally admitted as an inpatient. However, the problem of patients on observation being discharged to a skilled nursing facility and receiving large surprise medical bills has vastly improved.

We don’t believe anyone should have to ask every day what their status is, inpatient or outpatient, but it is always important to be informed and vigilant.