Will Medicare Cover Your Hospital Stay?

Imagine that you discover you have a life-threatening illness. Fortunately, it is discovered early enough for treatment to be effective. You go to the hospital, have surgery, and spend two nights on the surgical ward before heading home to recover. You don’t think too much about the medical bill; after all, you have Medicare, and Medicare Part A covers hospitalization.

A month later, you get a bill from the hospital. Even then, you open it without much concern; whatever amount you are being billed is likely to be trivial because of your Medicare coverage. But when you see the amount is due, you almost need to head back to the hospital for symptoms of a heart attack! You are being told that you owe over $25,000—and that doesn’t include a separate bill from the surgeon.

There must be some kind of mistake. You call the hospital billing department and ask for an explanation, reminding the person who answers that you are a Medicare patient, and Medicare covers hospitalization.

Unfortunately, the hospital’s billing department informs you, Medicare Part A covers hospital admissions, and you weren’t admitted. You argue that you most certainly were; after all, you spent two nights on the surgical ward! That’s when you are informed that, technically, you were not admitted. You were under “observation status” as an outpatient.

“Now, will you be paying by debit or credit card?” asks the person on the other end of the line.

How “Observation Status” Costs Seniors

It may seem incredible that you could have major surgery and stay in the hospital for multiple nights and still be considered an outpatient. Yet scenarios like the one described above are not unusual. In fact, some hospitals place up to 70% of their patients in so-called “observation status.”

And, as the scenario above illustrates, how your stay is coded makes a great difference to your insurance coverage. Why would hospitals choose to put surgical patients, and others who would generally be considered “admitted” under “observation status?” There are a couple of compelling reasons that apply to Medicare patients. A patient who has only Medicare Part A coverage can be charged more under observation status than Medicare permits for admitted patients. In addition, placing a patient under observation means a hospital will not have to deal with claims that patients were improperly admitted.

All of this is bad enough for patients who have surgery or treatment in a hospital, followed by a couple of days’ stay before they head home. For patients who must go to a rehab or long-term care facility to recover after their hospital treatment, it can be much worse.

That’s because Medicare Part A will cover the cost of up to 20 days in a rehab facility, IF it immediately follows a medically-necessary inpatient hospital admission of at least three days. Those three days, according to the “Medicare & You” handbook, begin on the day the hospital admits a patient as an inpatient and do not include the day on which the patient is discharged. That is why it is critical for patients and their families to understand, on each day of the hospital stay, whether they are admitted as an inpatient.

Of course, if the patient is under observation status, not only will Medicare Part A not cover their hospitalization, it also will not pay for any portion of their stay in a rehab facility. And they may not even realize it until a bill for tens of thousands of dollars shows up in their mailbox.

In 2015, Congress passed the Notice Act. This federal law requires patients who are under observation to be notified of their status within 36 hours after they have been placed under observation status. This notice is better than nothing, but it is still woefully insufficient. At the point they receive notice, they have generally already been under observation status for at least a (costly) day. And many patients are not in any condition to truly understand the implications of their observation status, even if they receive the notification.

An important note here about Medicare Supplement (Medigap) coverage and Medicare Advantage coverage, which may make a difference on this issue. Medicare Supplement coverage works with original Medicare Parts A and B to pay certain expenses that are covered by traditional Medicare. If you are on a Medicare Supplement plan, there is no distinction between observation and inpatient status as far as your hospital bills are concerned. The supplement will generally pay 100% of the cost. You may have to pay the annual Part B deductible of $198 if that had not been met yet.

If you have Medicare Advantage, you may also be better protected against big hospital bills for observation status. Advantage plans charge a daily hospital copay, often around $300, for inpatient stays (typically a maximum copay of seven days), but only a single copay of about $300-$500 for an observation stay, regardless of its length. Medicare Advantage is also aptly named when it comes to transferring to rehab or skilled nursing care. Unlike original Medicare, Medicare Advantage patients are not required to spend three midnights in the hospital before their coverage will pay for a stay in rehab. In fact, Medicare Advantage plans can pay for rehab even if the patient was in observation status the whole time they were in the hospital. You will need pre-authorization from the plan.

Protecting Yourself and Your Finances in the Hospital

The best time to protect yourself, and your coverage, is before you need a hospital stay. Now that you are aware that staying overnight in a hospital does not necessarily translate to inpatient status, you can be proactive. If you are going to a hospital for planned or elective surgery, insist that your surgeon and hospital give you written documentation that you will be an inpatient, not an outpatient under observation. If you must go to the hospital on an emergency basis, without time to get documentation, ask about your status. If you are told you are an inpatient, get documentation. If you are notified that you are being held for observation, ask to have your status changed to inpatient (or have a family member advocate for you).

If you are on original Medicare, consider switching to a Medicare Advantage plan (after comparing all aspects of the plans; original Medicare may still be best for you despite Advantage’s benefits on this particular issue).

Ideally, of course, there would be a law in place mandating that overnight stays in a hospital bed be considered inpatient stays for purposes of Medicare Part A and other insurance. In fact, there have been proposals introduced in the House of Representatives and the Senate to address the outpatient observation issue. However, they have not been passed into law. Until they are, remain aware and advocate for yourself and your loved ones.

If you have questions about Medicare, Medicaid, or elder law in general, we invite you to contact our law office to schedule a consultation.

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