Medicare: Inpatient or Outpatient?

It makes a difference:

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Hospital Observations Can Get Costly for Medicare Recipients
Observation care is billed as outpatient care, leaving Medicare beneficiaries with higher out-of-pocket expenses.
WSJournal FEBRUARY 5, 2012

(excerpted) Some Medicare beneficiaries who visit the hospital are getting surprised by big bills because their stays weren't considered inpatient services.

The issue arises when a Medicare beneficiary who comes to a hospital is placed in a status called "observation care." This is supposed to mean that patient is being watched while doctors decide if she can be discharged, or if she is ill enough to be admitted as a true inpatient. Observation is typically supposed to last 48 hours or less.

The number of observation hours grew to around 36 million in 2009, from 23 million in 2006, according to the Medicare Payment Advisory Commission. The commission also saw a growing number of stays lasting 48 hours or longer between 2006 and 2008.

The problem for Medicare beneficiaries is that observation services can result in unexpected expenses. They are considered outpatient care—even if the patient is in the hospital for several days. That means the visit isn't included under Medicare Part A, which covers the total cost of hospital services after a deductible. Instead, the patient owes copayments for services under Medicare Part B, which covers outpatient care and doctors' work. (Beneficiaries who have Medicare Advantage coverage pay according to their particular plan's rules.)

The biggest financial hit can actually come after the hospital stay ends. Medicare pays for nursing-home expenses only if the person was an admitted inpatient at a hospital for at least three days—not counting the discharge day. The nursing-home bill "means potentially thousands of dollars," says Frederic Riccardi of the Medicare Rights Center, based in New York.

In a handout for beneficiaries, Medicare says patients should ask doctors whether they are considered inpatient or outpatient. One signal of inpatient status is being given a document titled "Important Message from Medicare," about inpatient rights. Still, sometimes a stay can be reviewed and switched from inpatient to outpatient while a person is still in the hospital.