Observation Status Explained

Introduction

"My mom has been in the hospital for two nights. How can they tell me she was never admitted?"

Few things about hospitalization are more confusing than observation status.

A patient may spend the night in a hospital bed, receive medications, have blood tests and X-rays, see doctors and nurses, and eat hospital meals—and still not be considered an inpatient.

The distinction between observation status and inpatient status isn't obvious to most patients and families. But it can affect how Medicare or your insurance pays for your care and, in some circumstances, coverage for care after you leave the hospital.

Understanding your hospital status can help you ask the right questions and avoid surprises later.

The Short Answer

Observation status allows a hospital to provide care while the doctor determines whether a patient needs to be admitted as an inpatient or can safely leave the hospital.

A patient receiving observation services is considered an outpatient, even though they may be receiving care in a hospital bed and may stay overnight.

A patient with inpatient status has been formally admitted to the hospital as an inpatient based on a doctor's order.

The care may look very similar to the patient and family. The difference is the patient's hospital status.

What Does "Status" Mean in the Hospital?

When you are receiving care in a hospital, you are assigned a status that determines how the hospital classifies your stay for Medicare and insurance purposes.

The two terms patients and families most commonly hear are observation status and inpatient status.

These terms do not necessarily describe where you are physically located in the hospital, how sick you feel, or how much care you are receiving. A patient in observation status may be lying in a regular hospital bed, receiving medications, having tests, and staying overnight.

Inpatient status means the patient has been formally admitted to the hospital as an inpatient based on a doctor's order.

Observation status means the patient is receiving hospital care as an outpatient while the doctor determines whether the patient needs inpatient hospital care or can safely leave the hospital.

This distinction matters because observation status and inpatient status can affect how Medicare or insurance pays for the hospital stay and may affect coverage for certain services after discharge.

Because the difference is not obvious from simply looking at the care being provided, patients and families should ask: "Am I in observation status or inpatient status?"

Why Would Someone Be Placed in Observation Status?

Sometimes the doctor needs more time to determine what a patient needs.

For example, a patient may come to the emergency department with chest pain, weakness, dizziness, abdominal pain, or another problem that requires additional testing and monitoring.

The patient may need hospital care for a period of time, but it may not yet be clear whether inpatient admission is medically necessary.

Observation status allows the healthcare team to continue evaluating and treating the patient while determining the next step.

The patient may eventually be admitted with inpatient status, or the patient may improve enough to leave the hospital without ever becoming an inpatient.

Why Does Observation Status Matter?

Hospital status matters primarily because it can affect insurance coverage and what the patient may have to pay.

For people with Original Medicare (Medicare Part A and Part B, rather than a Medicare Advantage plan), inpatient hospital care is generally covered under Medicare Part A, while observation and other outpatient hospital services are generally covered under Medicare Part B.

That distinction can result in different deductibles, copayments, and other out-of-pocket expenses.

Hospital status can also affect Medicare coverage for skilled nursing facility care after hospitalization.

Because insurance plans differ, patients with Medicare Advantage or private insurance should ask their health plan how observation status affects their individual coverage.

What About Medicare and Skilled Nursing Facility Care?

This is one of the most important reasons Medicare beneficiaries should understand their hospital status.

Under Original Medicare, coverage for skilled nursing facility care traditionally requires a qualifying inpatient hospital stay of at least three consecutive days, not including the day of discharge.

Time spent in the emergency department or under observation status does not count toward that three-day inpatient requirement.

For example, a patient could spend three nights physically in the hospital but have only one qualifying inpatient day if the first two days were spent under observation status.

There are exceptions. Some Medicare programs waive the three-day requirement, and Medicare Advantage plans may have different requirements.

If skilled nursing facility care may be needed after hospitalization, ask the hospital case manager and your insurance plan about coverage before discharge whenever possible.

How Will I Know If I'm in Observation Status?

Don't assume that spending the night means you've been admitted as an inpatient.

Ask directly: "Am I in observation status or inpatient status?"

If you have Medicare and receive observation services for the required period of time, the hospital must provide you with a written notice called the Medicare Outpatient Observation Notice (MOON).

The MOON explains that you are receiving observation services as an outpatient rather than as an inpatient and describes some of the financial and coverage implications.

Read the notice and ask questions if you don't understand it.

Can My Hospital Status Change?

Yes.

A patient may begin in observation status and later be admitted with inpatient status if the doctor determines that inpatient hospital care is medically necessary.

In some circumstances, a patient who was admitted with inpatient status may later be changed to outpatient observation status.

Medicare beneficiaries now have appeal rights in certain situations when a hospital changes their status from inpatient status to outpatient observation status.

If you are told that your status has changed, ask why it changed and whether the change affects your hospital bill or coverage for care after discharge.

Questions You Should Ask

If you or a loved one is receiving hospital care, consider asking:

• Am I in observation status or inpatient status?
• Has my status changed since I arrived?
• Why am I in this status?
• How could my status affect what my insurance pays?
• Could my status affect coverage for a skilled nursing facility after discharge?
• Who can I speak with if I have questions about my status?

Write your questions down as you think of them. Hospitalizations move quickly, and it can be difficult to remember everything you wanted to ask when the opportunity arises.

Common Misconceptions

"I've been here overnight, so I'm an inpatient."

Not necessarily.

You can spend one or more nights in the hospital while remaining in observation status.

"I'm in a regular hospital room, so I must be an inpatient."

Not necessarily.

Your physical location in the hospital does not determine your status.

"If I'm sick enough to be in the hospital, I must be an inpatient."

Not necessarily.

Observation status and inpatient status are based on how your hospital stay is classified, not simply on how sick you feel or how much care you appear to be receiving.

When You May Need Additional Guidance

Observation status becomes particularly important when a patient has a complicated hospital stay, significant insurance concerns, or may need additional care after discharge.

If you're unsure about your status or how it may affect your coverage, ask questions early.

Your hospital case manager, insurance plan, or Medicare can help explain how your status may affect your individual situation.

How HNav Can Help

Hospital status is confusing because the difference between observation status and inpatient status often isn't visible to patients and families.

At HNav, we help patients and families understand what their hospital status means, identify the questions they should be asking, and understand how status may affect decisions about care after hospitalization.

Our goal is to help you understand what's happening so you can make informed decisions for yourself or your loved one.