Observation Care: Are You ‘Inpatient’ or ‘Outpatient’? It Makes a Difference



If you are in the hospital, occupying a bed, are you an inpatient of the hospital, or not? You probably think you are, but that may not necessarily be true. Here’s why:

Being ‘inpatient’ means you have been formally admitted to the hospital with a doctor’s order. Being ‘outpatient’ means that you are getting emergency department services, observation services, or having outpatient surgery, tests, etc., at the hospital, but a doctor has not written an order to admit you into the hospital. The amount of time you spend in the hospital, even if it is overnight, does not determine your hospital status. You are not an inpatient until you are admitted to the hospital formally on a doctor’s order.

Outpatient observation services are performed in a hospital on the hospital’s premises, including use of a bed and at least occasional monitoring by a hospital’s nursing or other staff, to help your doctor determine if it’s necessary to admit you formally to the hospital as an inpatient, or if you can be discharged. Generally, patients are not kept in outpatient observation status for more than 48 hours.

Why does your hospital status matter? Your status, inpatient or outpatient, has an effect on how Medicare pays the hospital, and how much you may have to pay for the hospital services. You can pay more for services received when you are in outpatient hospital observation status because instead of being responsible for one Part A deductible for all of your hospital services, you are instead responsible for a separate copayment for each outpatient hospital service. The total of your copayments for outpatient services, including tests, procedures and observation, can be more than your Part A deductible would be as an inpatient. Also, Medicare Part B does not cover self-administered drugs, including your prescription drugs and over-the-counter drugs that you may receive as an outpatient.

What determines whether you are admitted as an inpatient? Generally, you will not be admitted as an inpatient if you are not expected to need medically necessary hospital care for two of more midnights.

Here are some examples of how Medicare pays for observation services:

I am admitted to the hospital from the emergency room, based on a doctor’s order. Part A will pay for the hospital stay, and Part B (Railroad Medicare) will pay for the doctor’s services.
In another scenario, I visit the emergency room, I am sent to the intensive care unit or any other room so that my condition can be monitored. My condition gets better and the doctor lets me go home. Part A pays nothing, and Part B (Railroad Medicare) pays for the doctor’s services.
In cases where Part A does not pay, the outpatient services (such as the doctor’s services, lab services, radiology/x-rays, etc.) are paid for by Part B. I pay my deductibles and co-pays out of pocket. Each of these services is billed separately.
I visit the emergency room and the hospital staff keeps me for two nights. If one of those nights a doctor writes an order for me to be admitted to the hospital, Part A will pay for my hospital stay, and Part B pays the rest, minus my deductibles and co-pays.

There are many other cases and scenarios and situations in which Part A may or not pay. The most critical situation is for patients going to a skilled nursing facility (SNF) after a hospital stay. If the beneficiary has not been a hospital inpatient for three consecutive days, Medicare will not cover the SNF stay or services – regardless if the patient was physically at the hospital for three days or more.

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