Hospital Observation and Medicare: Outpatient vs Inpatient

No one likes going to the hospital. And to make matters worse, the bill you get afterward is sometimes even more frightening, especially if you’re on Medicare. The reason there is so much confusion about how Medicare covers hospital stays is that the two parts of Medicare (Part A and Part B) cover the two types of hospital visits differently.

Part A provides coverage for inpatient hospital stays, which is why it’s often called “inpatient” or “hospital” insurance. Part B pays for doctor’s visits and other outpatient surgeries, which is why it’s often referred to as “outpatient” or “medical” insurance.

To make matters more complicated, many people are surprised to find out that their visit to the hospital didn’t fall under either of those categories. Instead, the hospital coded it as an “observation” visit. Now, Medicare has to decide which part to file the claim under. A or B?

It’s important to understand how a hospital observation is treated by Medicare. That way, you won’t be surprised by any bills that arrive after you’re discharged. We’ll explain that today.

What Is Hospital Observation?

Hospital observation is the status a hospital puts you in when you aren’t sick enough to be admitted as an inpatient but are too sick to go home safely. As a patient, it’s hard to know when the hospital has made this decision. Everything looks as if you’ve been admitted - you have a room, a bed, a nurse, and they may even be running tests and giving you medications. In some instances, you may even be moved to an intensive care unit (ICU). Plus, you can spend up to 48 hours in observation care, which means you may even stay the night in the hospital, all while being treated under observation care, not inpatient. Pretty confusing, right?

The only real difference between inpatient care and observation care is that under observation, your doctor hasn’t formally admitted you to the hospital. There have been no official orders to classify you as an inpatient. 

Why does this happen? There can be a few different reasons you may stay under observation care instead of being moved to inpatient care. For example, maybe you were having chest pains, so you went to the emergency room. The lab tests didn’t show signs of a heart attack, but they noticed your EKG wasn’t completely normal. You have several risk factors for a heart attack, so your doctor decided to have you spend the night while you can be monitored. 

In this case, your doctor wasn’t comfortable sending you home, but you also weren’t having a heart attack, so you don’t meet admission standards. Therefore, observation is the best choice.

Simply put, observation care allows your doctors to determine the safest, best course of action under your current circumstances.

How Does Medicare Cover Observation Care?

If you are under observation care, Medicare considers that to be outpatient services, so coverage will fall under Medicare Part B. Assuming you only have Original Medicare and not a Medigap plan or Medicare Advantage plan, this would mean you’d be responsible for the Part B deductible, as well as 20% of the observation costs. 

Unfortunately, that’s more than what you likely would have paid had it fallen under inpatient care and Medicare Part A. Under that circumstance, you would have only had the Part A deductible.

As an example, if your doctor ordered lab tests and x-rays while under observation, you’d owe 20% of those costs under Part B. Medicare Part A would have covered them at 100%, save for any outstanding deductible.

This classification under Part B also means that any prescription drugs you’re given, even if they are standard medications for you, aren’t covered unless you have a Medicare Part D prescription drug plan. However, if you need IV or injectable medications, those will fall under Part B.

So, even though the Part A deductible is higher than the Part B deductible, the 20% costs you might incur will end up making your hospital visit much more expensive than you probably thought. However, if you have a Medigap plan like Plan G or Plan F, you won’t have to worry about those coinsurance costs as those plans pick up your 20% portion.

What Should I Do If I’m Under Observation Care?

Fortunately, if you’ve been under observation care for 24 hours, the hospital is required to give you a Medicare Outpatient Observation Notice (MOON). It will explain why you’ve been classified as “observation” and how that will impact you financially. You can’t appeal this decision, but you can speak to your providers about it.

Ask your doctor to admit you as an inpatient. If they won’t admit you, ask the hospital for written documentation explaining why they still require you to be under observation versus either sending you home or admitting you. You’ll want to get documentation from your doctors that states why admission was or was not medically necessary.

Make sure your doctor is aware of how their classifications and notes impact your Medicare coverage. This isn’t necessarily top of mind for the people who care about your health, so it can be helpful for them and you to provide this information.

Talk to a Medicare Advisor Today

Medicare is tricky, especially when you need it the most. Your Local Medicare Specialists are here to help guide you through situations just like these. If you aren’t already working with one of our advisors, now is the time! Find a Medicare advisor near you and get the support you need when you need it most.