Senior Lifestyles: Medicare’s new hospital rules – observation or admission

Published 10:00 pm Monday, April 24, 2017

Many Medicare patients face situations that bring them to the emergency rooms of hospitals. Often they are treated and released, but other times they may be kept in the hospital overnight or possibly for a few days, and that’s where financial trouble can begin.

In the past, many patients who were kept overnight assumed that because they were in the hospital, that they had been admitted as an inpatient. The surprise came upon their release within a day or two when they were informed that they had not been admitted, but were kept for observation. Under Medicare, observation is reimbursed as if it was a doctor’s visit. Medicare doesn’t cover the full costs for observation patients or some of the drugs they may receive while in the hospital as an unadmitted observation patient. Nor will Medicare pay subsequent nursing home care rehab for observation patients.

A new federal law does require hospitals to notify Medicare patients when they are in for observation but not being admitted, even if they stay in the hospital a few nights. However, it does not change the patient’s responsibility for payment of the expenses incurred for observation that may not be covered by Part B of Medicare.

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If patients come into the emergency room and are deemed too sick to go home but not sick enough to be admitted, they may be placed on observation care status to give doctors time to deal with their health issue. Medicare considers that to be an outpatient service, like a doctor’s visit and the patient’s pay a share of the cost of each test, treatment or other services including a stay in a rehab.

To be Medicare qualified for a stay in a rehab, the patient had to have a prior hospital admission of at least three consecutive days, and observation time doesn’t count. The rule of thumb is that if a physician expects a patient’s hospital stay will exceed more than two midnights, that patient should be admitted, but the doctors have the choice of opting for observation.

The new Medicare rule now requires that patients be notified of their status after receiving observation care for 24 hours and no later than 36 hours. Patients or their representatives are offered the option to sign the written notification to show that they received and understand what observation means. The problem is that the patient or his family may be under stress, and may not fully understand the ramifications of the explanation of hospital observation versus full admission.

This new rule creates some issues for doctors and hospitals. The time spent in the hospital may be partially covered under Medicare Part B as is a doctor’s visit, but the co-payment must be met by the patient. Benefits for the patient while in observation may include coverage for some prescription drugs to treat the emergency condition that triggered the trip to the hospital, but other drugs for that condition will be billed under Part B with separate copayments.

Additionally, patients will most likely have to pay out-of-pocket for any medications the hospital provides for preexisting chronic conditions such as high cholesterol, and then seek some reimbursement from their Medicare Part D drug plans for any covered drugs.

Having personally experienced a late night trip to the ER, I too was told I was being kept in the hospital. I refused to remain for observation and said I would stay only if the attending emergency physician agreed to admit me. My knowledge of the difference between an overnight stay for observation versus actual hospital admission resulted in my Medicare plan covering 100 percent of the expenses for what turned out to be a 20-hour stay involving some expensive drugs.

The takeaway from my experience is, if you go to the emergency room, and are told you’re being kept overnight, don’t be afraid to ask if you’re being fully admitted or held for observation. Doing so could save you a great deal of money.

Ron Kauffman is a consultant and expert speaker on issues of aging, Medicare and Obamacare. Ron is the author of Caring for a Loved One with Alzheimer’s disease, available as a Kindle book on He may be contacted at 828-696-9799 or by email at