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Outpatient Observation: Covered by Medicare?

Paying for medical care
Written by Legal Aid WV


We received a call from a family member who’s loved one had been in a hospital for about a week after suffering a hip fracture.  She needed physical therapy and was billed by the nursing home she had been admitted to because Medicare would not reimburse for the stay or therapy.  During our investigation we learned that the resident was never “admitted” to the hospital and instead was considered an outpatient “under observation”.   This Outpatient Observation Status is a result of changes in the Medicare program dating to Oct. 2012.   With this change, hospitals started being penalized when too many patients in traditional Medicare are re-hospitalized within a month of discharge.  The “outpatient” classification is often a surprise to patients; many do not realize their status until the patient is getting ready to leave the hospital and sometimes they are not told at all and only learn about the situation once they start receiving bills that are normally covered under traditional Medicare.

Why does this matter?

When hospital patients are classified as outpatients on Observation Status, they may be charged for services that Medicare would have paid if they were properly admitted as inpatients.  For example, patients may be charged for their medications.    For the population our Ombudsman Program serve, more significantly patients will not be able to obtain any Medicare coverage if they need nursing home care after their hospital stay.  Traditional Medicare only covers nursing home care for patients who have a minimum of a 3-day inpatient hospital stay and Observation Status doesn’t count towards a 3-day stay.

What can a patient do if the hospital puts you on Observation Status?

The Center for Medicare Advocacy recommends that if the patient is still in the hospital they first inquire as to their status and if they learn they are on Observation Status they should:

  1.   Seek the doctor’s help to “admit the patient as an inpatient”;
  2.   If the hospital insists on Observation Status, ask for a written notice stating this fact; and
  3.   Tell the hospital the patient wants their status changed because the care is “medically necessary” and requires an “inpatient hospital level of care.” Support from the doctor will help.

If the patient is no longer in the hospital the patient might be able to appeal the hospital care after the fact, however, winning Medicare coverage in Observation Status cases is increasingly difficult.  Try to get the patient’s physician to assist.

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