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Understanding Inpatient Versus Observation Status When a Senior Is Hospitalized

If you or a senior you love has been hospitalized recently, you might have been surprised to learn the hospital stay was classified as observation and not inpatient. Most Medicare patients aren’t aware there is a difference and just how important that difference is, especially as it pertains to finances.

Over the last decade, Medicare laws and penalties on readmissions made observation stays a more attractive option for hospitals than readmitting a patient. In fact, a New York Times report found that the number of seniors held under observation status soared by 69% between 2006 and 2011.

Medicare defines a Medicare observation stay as follows:

“Observation services are hospital outpatient services you get while your doctor decides whether to admit you as an inpatient or discharge you. You can get observation services in the emergency department or another area of the hospital.”

If a Medicare recipient is hospitalized for observation and not admitted, their Medicare Part A won’t pay for the hospital stay. The expenses will be partially—not fully—covered by Medicare Part B. That means seniors often incur additional expenses for items such as X-rays, medications, and lab tests.

Another important disadvantage is that seniors who are kept in observation status will typically not meet Medicare’s criteria to continue their recovery at a skilled nursing and rehab center. The Medicare skilled nursing benefit is often a critical component of a senior’s recuperation. It helps them become stronger and feel more confident before they return home.

This scenario is one many older adults are finding themselves in. A study by AARP revealed 2.1 million people were in hospitals under observation status in 2015. Of those, 150,000 were discharged with orders to continue their recovery in a skilled nursing facility. Because Medicare wouldn’t pay for this transitional care, only 50,000 seniors complied with their doctors’ orders.

To help seniors learn more about inpatient and observation stays, Medicare created a helpful guide. “Are You a Hospital Inpatient or Outpatient?” covers a variety of topics ranging from hospital notification requirements to Medicare Part B co-pays.



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