In the Hospital Under Observation? What to Know

First, the good news: If you’re in the hospital under observation status—a designation under which you’re considered an outpatient and not entitled to Medicare Part A reimbursement for your stay—a new law says the hospital must give you both written and oral notification that you’re not covered.

Being under observation means that you’re too sick to go home but not sick enough to warrant hospital admission. This law ensures that you won’t be surprised by large hospital bills you’ll have to pay out of pocket—bills that Medicare might normally pay had you been admitted as an inpatient.

Here’s the bad news: The hospital has up to 36 hours after you’ve received observational services to notify you, and even so, you’ll still be accountable for the associated costs you incurred while under observation. The only recourse you have is to convince your doctor and the hospital to admit you as an inpatient so Medicare coverage will kick in.

If you have Medicare Part B, you’ll be charged a copayment for each hospital service you received and 20 percent of the Medicare-approved amount for most doctor services, after the Part B deductible. Being under observation—typically 24 to 48 hours—also affects whether Medicare pays for a subsequent nursing home stay.

To qualify for Medicare coverage in a skilled nursing facility, you must spend at least three consecutive days and nights as a hospital inpatient before you transfer to a facility. Otherwise, if you’re under observation, Medicare will not pay your nursing facility costs because you’re considered an outpatient at the time of transfer.

The law, called the Federal Notice of Observation Treatment and Implication for Care Eligibility Act, or NOTICE, was passed by Congress in 2015, but hospitals had a grace period to comply, which ended on March 8, 2017.