Know Your Hospitalization Codes or Risk Medicare Denial

  • Your mom has fallen in her home and you’re now sitting with her in the hospital. Nothing is broken, they said, but she suffered a back injury they want to monitor. They’d like to keep her in the hospital for observation. You say sure, why not? She stays several days and then is released to a rehab facility for follow-up care.


    Medicare pays for the first 20 days a patient is in a rehab facility only if the patient is admitted and remains in the hospital for three days prior to treatment. But, according to AAPR, hospitals are increasingly leaving Medicare hospital patients “under observation” without officially admitting them.

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    Why does this matter? An article in the AARP Bulletin states that, “People go along with the days under observation and on to rehab believing that their stay in the hospital fits the requirements for Medicare coverage.” The problem is, observation doesn’t count. A person must be officially admitted to the hospital in order for Medicare to begin coverage.


    AARP gives tips on avoiding what they call the “observation trap”:

    • Ask about your status each day you are in the hospital. It can change from inpatient to observation, or vice versa, at any time.
    • If you’re in observation, ask the hospital doctor to reconsider your case or refer it to the hospital committee that decides status.
    • Ask your own doctor if observation status is justified. If not, ask him or her to call the hospital to discuss why you should be admitted as an inpatient. Make sure your doctor understands how observation could affect you financially.
    • If, after discharge, you need rehab but learn that Medicare won’t cover your rehab stay, ask your doctor whether you qualify for similar care at home through Medicare’s home health care benefit.
    • If you go to a rehab facility and have to pay for it yourself, you can formally appeal Medicare’s decision, following instructions given in your quarterly Medicare Summary Notice. Explain that you want to appeal on the basis that you should have been classified as an inpatient during your hospital stay. If this is denied, you can go to a higher level of appeal, following instructions on the denial letter.

    A lawsuit has been filed to fight this practice of putting people under observation for days and not admitting them to the hospital. The suit alleges that the practice of putting patients in observation denies them coverage for post-hospital rehab therapy, so they must either pay the facility’s full bill or go without treatment. Observation also classifies the people as outpatients while they’re in the hospital. Therefore, their Medicare coverage comes not under Part A (hospital insurance) but Part B (which normally covers doctors’ services and outpatient care). For many patients this can mean a significant co-pay. Those without Part B coverage would get the full bill.


    For now, most hospitalized elders under Medicare coverage need an advocate with them who can check the status of the hospitalized person regularly, and fight for admission status if the patient’s condition warrants it. The mother/daughter team above is still appealing the charge, but they don’t have a lot of hope that they will prevail until the Medicare rules change. It's sad to have the added stress of constantly second -guessing and double checking our health care coverage in general,  let alone at the time it becomes urgent, when we are ill and in the hospital.  


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    Source:  Barry, P. (2012, October) AARP Bulletin. Medicare: Inpatient or Outpatient? Staying in the hospital without being formally admitted can cost you thousands of dollars. Retrieved from



Published On: November 15, 2012