When you are on Medicare and have a hospital stay, your “hospital status” will affect your out-of-pocket expenses. Your hospital status can also affect whether Medicare will cover your care in a skilled nursing facility after your hospital stay. There are two classifications of hospital status: "observation" and "inpatient."

Let’s look at “observation” first. According to Medicare, “observation” is short-term outpatient services received when you are in the hospital for monitoring purposes and/or to determine if you should be admitted as an inpatient. It is important to understand that if you are receiving observation services, you have not been formally admitted to the hospital as an inpatient, even if you stay overnight.

You have the right to ask hospital staff about your status. The hospital must also provide you with a notice that your status is for “observation” services for more than 24 hours. This is called the Medicare Outpatient Observation Notice, or MOON. Your doctor should explain to you in person about MOON and that it notifies you that you are receiving observation services and explains why you are an outpatient.

"Observation" services often involve an overnight stay in the hospital, and because of that, may look no different than inpatient services. But it is very important to know if you are an inpatient or an outpatient because this determination affects how Medicare pays.

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  • Part A pays for care received at the hospital by an inpatient.
  • Part B pays for care received at the hospital by an outpatient under observation status.

Typically, you pay more when Part B covers your hospital care. For example:

  • You may have multiple co-payments. Each specific co-pay must be lower than the Part A deductible ($1,408 in 2020), but your total co-pay costs may be higher than the Part A deductible.
  • Part B does not cover medications you routinely take. Instead, you will use your Part D plan for prescription drug coverage. If the hospital’s pharmacy is out of your plan’s network, you may pay more for your medications.

Now, let us look into “inpatient” status. Having “inpatient” status means you have met the conditions and have formally been admitted to the hospital per doctor’s orders. The conditions include: formal doctors’ orders, the care needed can only be given in a hospital setting and the hospital participates in Medicare.

According to Medicare.gov, “The decision for inpatient hospital admission is a complex medical decision based on your doctor’s judgment and your need for medically necessary hospital care. An inpatient admission is generally appropriate when you are expected to need two or more midnights of medically necessary hospital care. But your doctor must order such admission and the hospital must formally admit you in order for you to become an inpatient.”

Covered inpatient services include a semi-private room and meals, general nursing care, medically necessary medication, and other hospital services and supplies (lab tests, X-rays, ICU, operating and recovery rooms, rehabilitation, and other medical services and supplies).

The Part A benefit period begins the day you are admitted as an inpatient into a hospital and ends when the person has not received Medicare covered skilled care (in a hospital or skilled nursing facility) for 60 consecutive days. During this time, you will be responsible for the Part A deductible. In order for Medicare to continue paying after a qualifying hospital stay, (such as for a stay in a skilled nursing facility) you must spend three midnights in the hospital. This also applies to swing bed stays.

However, due to COVID-19, there is currently a waiver of the three-day stay. The qualifying hospital stay waiver applies to all skilled nursing facility-level beneficiaries under Medicare Part A, regardless of whether the care the beneficiary requires has a direct relationship to COVID-19.

It is important to understand, Medicare will not cover skilled nursing facility care if you have been under observation status and your provider suggests you receive skilled nursing facility care. You may have to pay out of pocket for all those costs.

Your hospital status is an important piece of information to understand because your care after leaving the hospital can be affected, as well as your out-of-pocket expenses. If you are unsure what your status is, ask your healthcare provider for more information. Your knowledge is key to your health care.