Going to a hospital can be stressful, and staying in one can be just as disturbing. But once you are in a hospital bed and people are taking care of you, you assume that your Medicare insurance has been triggered and all is under control.
Unfortunately, that's not always the case, at least not how you think it is.
Most people don't realize that your doctor can admit you for inpatient care or observation. And that "small" difference can significantly affect how Medicare pays its claims.
Remember that Original Medicare has two parts: Part A (inpatient hospital care) and Part B (outpatient medical services). If your doctor has the hospital admit you as an inpatient, you are covered by Part A. But if you are admitted only for observation, Part B pays for you. And the coverage is not the same.
Let's look at the differences and how to protect yourself if you're hospitalized.
What is observation care?
From the patient's viewpoint, it's not easy to tell how you were accepted into the hospital. You're in a hospital bed in a room, tests are being done, and nurses are giving you medications. You could even be on a specialized care floor or the ICU.
According to Medicare, you are typically an outpatient if you are getting emergency department services, outpatient surgery, lab tests, X-rays or other hospital services with no doctor's order for admission.
Even if you spend a night or two, you may not actually be admitted if the doctor hasn't formally done so. You may still be under observation care –a Medicare designation if you're not seriously ill enough to be admitted, but you're also not well enough to go home. The decision is not arbitrary: your doctor will make the determination based on the guidelines published in the Medicare Benefit Policy Manual.
When could this happen? Say you went to the ER with chest pains, and while some readings looked abnormal, you were not having a heart attack. To be safe, your doctor had you stay overnight for monitoring to be sure you could eventually go home safely. But because you weren't having a cardiac event, you didn't meet the standards for admission.
Whatever the reason for holding you at the hospital, observation care is designed to provide you with the safest course of action. And in general, observation status is limited to 48 hours, although that isn't always the case.
Takeaway action step: Each day you are in the hospital, ask – or have your caregiver ask -- the hospital, your doctor, a hospital social worker or a patient advocate if you are an inpatient or outpatient under observation. You need to know.
How does Medicare treat observation care?
Because observation care is considered outpatient, it falls under Part B, which covers 80% of Medicare-approved expenses. You are left with your 20% share of coinsurance – unless you happen to have Medicare Supplement insurance (Medigap).
The difference is that, as a formally admitted inpatient, Part A could cover 100% of expenses once you meet your deductible per benefit period ($1,600 in 2023). But under Part B, whether it's doctor visits, lab tests or x-rays, you could be held responsible for 20% of an open-ended bill as an outpatient.
As for medications, IVs or injectable drugs would fall under Part B coverage, but your regular medications would not. So if the hospital is administering your normal high blood pressure or diabetes medicine, it will be at your expense unless you have a Part D prescription drug plan.
The worst part is that you wouldn't know the difference until the bill arrived.
Are there other downsides to being under observation?
Being in a hospital under observation – and not formally admitted – has other implications beyond the financial ones. It has to do with a benefit available to you under Part A. You have access to up to 100 days in a skilled nursing facility (SNF) under Part A, and the first 20 days are covered entirely. But to qualify, your SNF stay has to follow at least three days of inpatient hospitalization. And unfortunately, observation days don't count.
For example, say you went to the ER with chest pains, as above, and your doctor held you there for two days of observation. Then your condition worsened, and you were admitted for a procedure. Two days after the procedure, your doctor said you needed skilled nursing and referred you to an SNF for rehabilitation. Because only two of the four days you were hospitalized were considered inpatient, Medicare will not pay for your SNF care which can average around $300 per day – and vary significantly with location.
Sadly, observation status is said to exist to lower the amount of SNF care Medicare has to pay for.
What can I do if I'm getting observation care?
The most crucial step in protecting yourself against unexpected billing is knowing the difference between observation care and inpatient care. And, because you know that, you must ask as often as needed to get an answer.
As a result of a class action lawsuit, Medicare changed its guidelines in 2017 regarding observation care. The hospital must now provide you with a Medicare Outpatient Observation Notice (MOON). This explains why you are under observation and the financial implications of that status.
Here are some steps you can take if you are in a hospital under observation:
Request to talk to your doctor and have him admit you as an inpatient.
Advise your doctor of the potential consequences of being held under observation and not admitted.
If your doctor refuses to admit you, request a written explanation from the hospital of the specific guidelines used to assign observation status.
Have someone in the billing office estimate your out-of-pocket costs under inpatient and observation.
You can't appeal the MOON to Medicare, but you can appeal your hospital bill after you've been discharged. By talking to your doctor as soon as you receive the MOON, he will be more likely to support your appeal if there is one.
Is there a way to avoid exposure to the cost of observation care?
If you have Original Medicare, the solution is to purchase a Medigap plan. Most plans will pay your Part A deductible if you are admitted to the hospital – and between 50% and 100% of the remaining 20% coinsurance charges under Part B. That way, you are not concerned about whether you are admitted because most costs will be covered either way.
Takeaway action step: Consider buying a Medigap plan, even if you can only afford the one with the lowest coverage – and premium. It will cover the bulk of the costs if you are hospitalized.
Another possibility is to enroll in a Medicare Advantage plan that covers Part A, Part B and Part D prescription drugs.
Takeaway action step: When you select a plan, ask how observation status would be handled and if the plan will waive the 3-day inpatient rule for SNF coverage. In any case, your plan will have a maximum out-of-pocket that would limit how much you could be charged.