Are You in the Hospital or Not?

If you think you are having a stroke, you'll probably go to the nearest ER. But will the hospital admit you? After you have been checked into the ER, the doctor may instead put you under "observation," especially if it is unclear whether you have had a stroke, a fainting spell or something else.

What is observation status? It's an outpatient designation used to monitor patients during periods of medical uncertainty. Rather than being formally admitted as inpatients, patients in observation remain as outpatients. Increasingly, hospitals are "observing" without admitting Medicare beneficiaries - sometimes for more than 48 hours.

Recent media reports on this issue, such as when Sen. Harry Reid went to the hospital for observation, reflect common confusion about the distinction. Was Reid admitted as an inpatient or merely observed as an outpatient - and why does it matter?

For most patients, this is a distinction without a noticeable difference. Patients under observation are often placed in a hospital bed and receive the same services as hospital inpatients. However, for Medicare beneficiaries, the difference between inpatient and observation status may be important. Medicare patients in observation may face higher cost-sharing than admitted patients. As a result, some beneficiaries incur high out-of-pocket costs for services that they thought were covered completely or far more extensively.

Some Medicare beneficiaries may also be denied coverage for certain services because they weren't admitted in the hospital long enough. That's because Medicare requires a three-day inpatient stay before it will pay for care in a skilled nursing facility (SNF). Unfortunately, time spent in observation does not count toward this three-day prior stay requirement. Beneficiaries may subsequently receive care in an SNF without realizing that Medicare will not pay for it and get stuck with out-of-pocket costs that can amount to thousands of dollars. Or, some may choose to forgo needed care in an SNF because of the costs.

The use of hospital observation has grown rapidly in recent years. Concerns about the implications of this rapid growth on quality of care and the high out-of-pocket costs faced by some Medicare beneficiaries are now getting the attention of the media, courts and policy makers.

To learn more about this trend, read our report "Rapid Growth in Hospital Observation Services: What's Going On?" You can also see the report explained and key issues discussed by experts at a congressional briefing that appeared on C-Span2 on Dec. 6, "Am I in the Hospital or Not? Why Hospitals are 'Observing' - Not Admitting - Patients."

Keith Lind is a senior strategic policy advisor at the AARP Public Policy Institute. His areas of expertise include Medicare, hospital observation, medical devices, and fraud and abuse.