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What’s With “Observation Status” in Hospitals?

If you or a family member are a Medicare beneficiary and have been recently hospitalized, you may be surprised to learn that as far as Medicare is concerned you were never “admitted” to the hospital.  Rather, you may have been classified as being there under “observation status,” even if you or the family member stayed overnight.

The Centers for Medicare & Medicaid Services defines observation services as

  • . . . short-term treatment, assessment, and reassessment . . . furnished while a decision is being made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital.

Such observation services are not supposed to last more than 24 or 48 hours, but sometimes they do.

Being classified as receiving observation services can have a significant impact on the patient’s Medicare benefits:

  • Subsequent nursing home care may not qualify for Medicare coverage because it won’t be preceded by three days of covered hospital care.
  • The patient will have to seek prescription drug coverage during the hospital stay under Medicare Part D, rather than having it  automatically covered.  Most likely the hospital won’t be in the drug plan’s network, meaning that the patient will have to pay out-of-network prices. And it’s possible that the beneficiary will be charged out-of-pocket for the entire cost if the drug is not in the plan’s formulary.
  • Copayments may be larger as well.

Since 2017, hospitals have been required to give patients written notice within 36 hours of being in the hospital if they are being classified as outpatients there for observation only. There are no formal appeal rights to such a notice.

So, what can you or your family member do about this? Mostly ask questions and advocate. Ask the doctors and hospital social workers how you are being classified, as “admitted” to the hospital or only there for “observation.” If the latter, ask what the process is for reclassification.

The Center for Medicare Advocacy provides information about observation status (as well as other Medicare issues) along with advice on how to respond to such a classification here.

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