The Major Difference Between Admission and Under Observation for Hospital Stays
If you are on traditional Medicare, either alone or with a Medicare Supplement plan or on Medicare Advantage and are taken to the hospital one important distinction in describing your status can make a very sizeable difference in your bill both on your leaving and on receiving rehabilitative care. It is the difference between the expression “you are admitted” and the expression “you are under observation.” This is not the only distinction. The other is based on the length of your hospital stay. Were you “admitted” for a period that included at least “two midnights” or for “three midnights” or none of the above. The “two midnight” rule has related to payment for hospitalization under Medicare Part A as opposed to Medicare Part B. Medicare Part A is the hospitalization coverage. Medicare Part B is typically used to cover therapy and other outpatient treatment. It probably would come as a surprise that, even though the patient might be in a hospital room it is possible he/she might not be considered “inpatient.”
The “three midnight” rule relates to payment for rehabilitation following hospitalization, often in a skilled nursing facility. The “three midnight” rule has been extremely important since failure to meet the three midnight standard has resulted in many cases in the skilled nursing stay being denied for payment under Medicare Part A, the kind of coverage that can continue for up to 100 days
for rehabilitative care although typically much less.
There has been under consideration legislation in Congress with support from both political parties to eliminate the “under observation” vs. “admitted” distinction regarding hospitalization but as matters now stand this distinction can make a sizeable difference. More on this later.
What is “under observation” and what is “admitted?” In an article that appeared in “Verywell Health,” “Why You May Pay More If You Are Hospitalized for Observation,” updated on August 17, 2024, the author, Elizabeth Davis, RN described the difference between “observation status” and “inpatient status”. “Observation status means that you have a condition that healthcare providers want to monitor to see if you require inpatient admission. Observation status is an outpatient status, but it can also last for multiple days, depending on the circumstances (i.e. the fact that you’re in the hospital overnight doesn’t necessarily mean you’ve been assigned inpatient status.) You may be assigned to observation status when healthcare providers aren’t sure how sick you actually are. In such cases, the healthcare providers can observe you and make you an inpatient if you become sicker, or let you go home if you get better…” Inpatient status, on the other hand “means that you have serious medical problems that require highly technical skilled care…” id.
(Note that the three day inpatient stay prior to skilled nursing coverage was waived during the COVID public health emergency but that ended in May, 2023.)
What is the practical effect of all this discussion? It is that, if you are taken to the hospital you want to be considered under the category of “inpatient” status and you preferably would remain in inpatient status for at least “three midnights” if you are to receive rehabilitative care (rehab) following hospitalization especially such care in a skilled nursing facility. If you do not know which, you can ask.
If the distinction between inpatient and observation status seems artificial you are not alone. A Connecticut Court in 2019 found in Alexander v. Azar that the plaintiffs who were Medicare beneficiaries had a property interest in the determination whether they were inpatient or under observation because the language in the federal regulation stated the decision was in the physician’s discretion. Cited in Stevens & Lee, “Inpatient vs. Observation Status: Finally Some Hope for Medicare Patients,” Health Law Observer, July 19, 2019.
A simpler approach was taken in proposed legislation that was supported by multiple healthcare organizations. The Improving Access to Medicare Coverage Act of 2023 (HR 5138) was introduced jointly by Democrats and Republicans from several states. If passed it would count the time Medicare beneficiaries spend in observation toward the three-day stay requirement, so Medicare patients who spend three days in a hospital, regardless of inpatient/observation designation, are able to access post-acute care in a SNF <Skilled Nursing Facility> when they need it… See “Support the Improving Access to Medicare Coverage Act” listing organizations in favor. In the meanwhile you can simply ask whether you are inpatient or under observation and count three midnights.