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Medicare Hospital Inpatient vs. Outpatient Observation Status: How It Affects Your Benefits and Costs

Medicare Hospital Inpatient vs. Outpatient Observation Status: How It Affects Your BenefitsAre you a hospital inpatient or outpatient? Understanding the difference between inpatient vs. outpatient observation statuses can help you better understand how much you will be charged for hospital services.

Your hospital status, whether the hospital considers you an inpatient or an outpatient, affects how Medicare covers the services you receive, as well as whether or not Medicare will cover you in a Skilled Nursing Facility (SNF). While some may think that staying in a hospital overnight automatically signifies outpatient status, this is not the case. In certain cases, a patient may never be formally admitted into the hospital and instead be on observation status, which could mean the difference between paying thousands of dollars more. Additionally, Medicare does not pay for all the bills just because you are admitted into a hospital. It is important for beneficiaries to be aware of the differences between inpatient vs. outpatient status and how Original Medicare (Part A and Part B) covers services received in a hospital.

What is the difference between inpatient vs. outpatient status?

If you are admitted into a hospital for more than a few hours, you or a family member may want to ask your doctor or the hospital staff whether you are an inpatient or an outpatient. It is important to ask during each day of your stay as your status may change.

An inpatient stay means that you are formerly admitted into the hospital per doctor’s order. It begins the first day you are formally admitted until the day before you are discharged.

If you are an outpatient, you are put on observation status. This means that the doctor has not written an order to admit you to the hospital as an inpatient, even if you stay overnight at the hospital. This may be the case if you are getting emergency care, observation services, outpatient surgery, lab tests, or X-rays.

How are inpatient vs. outpatient services covered differently?

Generally, you pay lower copayments and out-of-pocket costs as an inpatient than as an outpatient on observation status.

When you are an inpatient, Medicare Part A covers your hospital services after you have paid your deductible. In 2013, there is a deductible of $1,184 for the first 60 days of a hospital stay and a coinsurance amount beyond that. Additionally, Part A will cover eligible drugs administered as part of an inpatient treatment during a covered stay. Most of your doctor services will be covered by Medicare Part B. You are responsible for a 20% copayment for these services after paying the Part B annual deductible, which is $147 in 2013.

As an outpatient, Part A will not cover any services. Part B covers your outpatient hospital services; however, you are required to pay a copayment, which will vary for each service. While the copayment for each single outpatient hospital service cannot be more than the inpatient hospital deductible, the total amount for all outpatient services may be more. Part B also covers your doctor services as an outpatient, similarly to how it is covered when you are an inpatient. Generally, prescription drug coverage in an outpatient setting is covered by neither Part A nor Part B.

Additionally, Medicare will not cover follow-up care in a nursing home for outpatients, even if it is recommended by a doctor. You must spend at least three consecutive midnights as an inpatient in order to be eligible for nursing home coverage.

How is your hospital status determined?

The Center for Medicare and Medicaid Services (CMS) has recently published new rules on how to determine whether hospital patients can be reimbursed as an inpatient or as an outpatient. These new regulations define what makes an inpatient hospital stay “medically necessary.” In order for a hospital to claim you as an inpatient under Part A, the following requirements must be met:

  • The physician or qualified health professional must order your hospital admission in writing from the beginning. This is also called the signed “Physician Order and Certification,” which must be included in your medical record.
  • There is a “two midnights” standard, which means that your stay must overlap at least two midnights.
  • The hospital must provide justification for your admission within your medical case file, which can be in the form of admission and progress notes as well as other relevant documentation.

Forbes and Kaiser Health News also covered this story.

Do you remember to inquire about your observation status when visiting the hospital?


Medicare hasn’t approved or endorsed this information.

About Angela Chen

Angela Chen is a contributor and editor of the eHealth Medicare Blog and the PlanPrescriber Blog.
This entry was posted in Medicare Coverage & Costs, Medicare News & Information, Medicare Part A, Medicare Part B, Original Medicare. Bookmark the permalink.