Medicare: The Difference Between Inpatient and Observation - Mature Health Center

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Originally published March 6, 2014, last updated March 7, 2014

Medicare: The Difference Between ‘Inpatient’ and ‘Observation’

How would you define the difference between being “admitted as an inpatient” into the hospital versus being “held for observation”?  You may be in the hospital for the same amount of time and receive the same services, so it’s the same thing, right? Unfortunately, there is a difference, and what is seemingly a small difference could end up costing you considerably. 

Typically, when you are admitted as an inpatient into the hospital, the care is covered under Medicare Part A. However, when you are being held for observation, it’s covered under Medicare Part B as outpatient services.

Medicare Part B’s outpatient services can have added expenses that you wouldn’t typically find under Medicare Part A services. These added expenses may include co-pays for doctors’ fees and each hospital service, as well as any routine drugs the hospital provides for maintenance or chronic conditions. If you have  coverage in addition to Medicare, these costs are usually covered by that supplemental plan.     

Here’s another important point about the difference between the two: if you’re admitted for observation and need skilled nursing care after you’re released, you won’t receive benefits under Medicare – even if your doctor orders it. However, if you’re admitted as an inpatient and need skilled nursing care – after the Medicare-required three-day hospital stay – it will be covered under Medicare. 

The number of Medicare patients entering hospitals under observation has increased 69 percent in five years, according to federal statistics reported by Kaiser Health News. At the same time, Medicare hospital admissions have declined slightly. 

Why, you ask? 

Money – if you enter the hospital as an inpatient and it should have been coded as observation, Medicare may not reimburse the hospital. If you are admitted under observation and have to re-enter the hospital again within a 30-day timeframe, it will not be counted against the hospital as a re-admission. Medicare can withhold a percentage of payment from hospitals with increasingly higher re-admission rates. So the hospital, fearing they won’t be reimbursed, would rather place you in observation. 

So what do you do to prevent this from happening to you?

Ask the hospital how they are coding your stay. Unfortunately, the hospital does not have any legal obligation to tell you. But ask anyway. If they refuse to tell you, wait until you receive your Medicare summary notice from your stay and determine if you owe anything out of pocket. If you do owe Medicare and feel you should have been admitted as an inpatient instead of for observation, you can appeal the charges. The appeal process is on the summary notice. 


Have questions about your Medicare coverage? Call one of our Benefit Advisors  at 1-866-312-3535

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