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Medicare Games: When Is a Stay in the Hospital Really a Stay?


It may seem like a no-brainer. If you or a family member is on Medicare, you would assume that if they are in the hospital their care would be covered under Medicare's Part A hospital benefit. Right? Well, not always. The definition of a stay is tricky and depending on how a stay is defined, families can be left with unexpected bills totaling thousands of dollars.

Here's the problem: It's not uncommon for a hospital to admit patients for what's called "observational status." That means hospital personnel watch the patient while doctors decide if he or she can go home or if they are sick enough to be admitted as a bona fide inpatient.

Medicare considers "observational status" to be an outpatient service, which is paid for under Medicare Part B and not Part A, the hospital benefit. With Part B coverage, there is 20 percent coinsurance, or 20 percent of the bill, a patient must pay plus a deductible. Medigap policies usually cover this amount, but with Medicare Advantage plans, the insurers' rules determine what's paid. And 20 percent of a bill for several days in the hospital adds up to big dollars quickly.

Observational stays are not supposed to last more than 48 hours, but the Medicare Payment Advisory Commission (MedPac), which advises Congress, has found that there are an increasing number of observations lasting longer than that. The number of observational stays is growing, too, making it more and more likely that you or a family member will experience one.

Why are hospitals doing this? Toby Edelman, a senior attorney at the Center for Medicare Advocacy in Washington, explained, "It's one way to keep Medicare fraud investigators off their backs. If they classify someone as an inpatient who should simply be held for observation, they could get in trouble with Medicare's fraud police looking for overpayments to providers." So, Edelman says, they try to stay beneath the radar and take the advice of hospital consultants to play it safe.

The health reform law gives hospitals even greater incentive to keep patients under observation. Soon Medicare will start penalizing hospitals financially if patients are readmitted. Readmissions are expensive for Medicare, and curbing them is a way to reduce their costs. Edelman says that if a patient is admitted for observation and later must return to the hospital, it is not counted as a readmission. But if a person is admitted as an inpatient at first and later must be readmitted as an inpatient, the hospital can be penalized.

Like so many things in health care, trying to solve one problem simply creates another. This observational versus inpatient status sure creates some big headaches for Medicare beneficiaries. If you or your family finds yourselves in this pickle, you may need to appeal Medicare's decision to classify your family member's hospital bills as outpatient care. Here are some steps that will help you:

If the patient is still in the hospital, try to get the status changed to inpatient.

Seek your doctor's help in persuading the hospital to change a patient's status.

Obtain hospital records, which will be necessary to show why someone should have been an inpatient.

Check the Medicare Summary Notice that summarizes the patient's stay, and then follow the appeal steps the notice outlines.

There's a lot of paperwork involved, but the Center for Medicare Advocacy's website can help with the task of appealing a decision. "It's crazy the way we do it," says Edelman. "It doesn't make sense from the patient's perspective. You're in a bed, you get hospital food, you have tests done, and yet it's not a hospital stay. It's not the way to get good health care."


More Blog Posts by Trudy Lieberman

author bio

Trudy Lieberman, a journalist for more than 40 years, is an adjunct associate professor of public health at Hunter College in New York City. She had a long career at Consumer Reports specializing in insurance, health care, health care financing and long-term care. She is a longtime contributor to the Columbia Journalism Review and blogs for its website,, about media coverage of health care, Social Security and retirement. As a William Ziff Fellow at the Center for Advancing Health, she contributes regularly to the Prepared Patient Blog. Follow her on twitter @Trudy_Lieberman.

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