Hospitals Must Tell Medicare Patients if Care Is ‘Observation’ Only

Q. My father was in the hospital last month due to a fall in the stairwell at my parents’ split-level home. My mother wasn’t able to lift him herself, so the ambulance came to assist her. They thought he seemed weak and out of sorts, so they insisted on bringing him to the hospital to test him for a UTI, among other things. When they found nothing other than the Parkinson’s he has had for over 20 years, they kept him in the hospital for two nights anyway.

When my mom told me what happened, I remembered something I read in one of your newsletter articles about “observation status” and Medicare not paying for hospital stays that were considered to be observation care only. I called my mom to inquire about whether the hospital told her if my father was admitted or in observation status. I knew that if he was in observation status, she could be facing a several thousand dollar bill.

My mom said that they didn’t mention anything to her about his status, and that she would ask. Once she asked, observation status was mentioned. She was relieved that she was only asked to pay the co-pay upon discharge but was not completely surprised, though still quite upset, when she received a hefty bill in the mail shortly after the stay.

Aren’t people supposed to be told whether their loved one is in observation status on being admitted, without even asking? If she didn’t know from me to ask, she wouldn’t have asked and would have been completely shocked by the bill. Also, what if Dad needed short-term rehabilitation in a nursing home after his visit? Would Medicare have covered THAT if he was in observation status in the hospital beforehand? Thanks for your help!

A. Under a federal law that was enacted last year, hospitals across the country are legally required to alert Medicare patients when they are getting observation care and why they were not admitted — even if they stay in the hospital for a few nights or more. For years, seniors often found out only when they got surprise bills for the services Medicare doesn’t cover for observation patients, including some drugs and expensive rehabilitation care in a nursing home after the hospital stay.

What Is Observation Care?

When patients are too sick to go home but not sick enough to be admitted, observation care gives doctors time to figure out what’s wrong. It is considered an outpatient service, similar to a doctor’s visit. Observation patients pay a share of the cost of each test, treatment, or other services, which could add up to thousands of dollars, none of which is covered by Medicare.

As you asked in your question, if a patient were to need nursing home care to recover their strength after observation care in the hospital, Medicare won’t pay for that either because that coverage requires a prior hospital admission of at least three consecutive midnights, and observation time doesn’t count toward those three days.

What Medicare Covers

After a hospital discharge, Medicare Part A pays the full cost of skilled nursing and rehabilitation for the first 20 days, and a large portion of the costs up to 100 days — but only if you have been an inpatient. If you have spent less than three consecutive days in a hospital or have not been officially admitted as an inpatient (aka observation status) you will effectively be denied your Medicare Part A coverage to fund rehabilitation and nursing services. So, if you are left unable to walk independently or care for yourself after your “observation status” stay and need skilled nursing care and/or subacute rehabilitation, you will have to pay privately for it at a cost of about $400/day in the DC Metro area.

The Observation Status Law

In your situation, your mother should have been notified without asking about whether your father was under observation care. Legislation that was passed last year mandated that hospitals must inform patients who are hospitalized for more than 24 hours whether they are on observation status. Within 36 hours after a patient is placed on observation services they must be informed, both verbally and in writing, “the reasons for such status.”

“The observation care notice is a step in the right direction, but it doesn’t fix the conundrum some people find themselves in when they need nursing home care following an observation stay,” said Stacy Sanders, federal policy director at the Medicare Rights Center, a consumer advocacy group.

Medicare officials have wrestled for years with complaints about observation care from patients, members of Congress, doctors, and hospitals. Five years ago, officials issued the “two-midnight” rule. With some exceptions, when doctors expect patients to stay in the hospital for more than two midnights, they should be admitted, although doctors can still opt for observation.

But the rule has not reduced observation visits, the Health and Human Services inspector general reported. On a positive note, most observation visits are less expensive for beneficiaries than a hospital admission if they stay a short time, which the inspector general’s report also concluded. Doctors should “front-load” tests and treatment so that the decision to admit or send the patient home can be made quickly. “If you get them out within a day, they are more likely to go back to independent living as opposed to needing nursing home care,” he said.

Seniors Can Appeal if They Were Denied Coverage

If you or a loved one believe that observation status has been applied inappropriately, you may want to take action as soon as possible. The Center for Medicare Advocacy ( has some useful information and an FAQ on Medicare eligibility and rights. You may also want to consult a knowledgeable resource such as an Aging Life Care Professional at

According to Judith Stein, executive director of the Center for Medicare Advocacy, “If they think the reason they were denied was because the skilled therapy or nursing care was provided to maintain their condition or slow deterioration,” she said, “then hopefully this will provide more strength for an appeal and in the future more strength for the provider to submit the claim as covered in the first case.”

We Assist Our Level 4 Patients with Medicare Appeals

The Farr Law Firm assists our Level 4 clients with first-level Medicare Appeals via telephone when a nursing home is threatening our client with a discontinuation of needed Medicare benefits. The nursing home patient must have been admitted for at least three days in the hospital (note that “observation status” does not count toward those three days), and the nursing home stay must commence within 30 days of the hospital discharge. Read more here.

Medicare Does Not Pay for Nursing Home Long-Term Care

Keep in mind that Medicare ONLY pays for short-term therapy and skilled care in a nursing home for up to 100 days, and this is only after a patient has spent three midnights as an inpatient in the hospital. Skilled care includes physical therapy, occupational therapy, speech therapy, wound therapy, and observation of changing conditions. Medicare will also pay for physician-authorized skilled care provided to a homebound beneficiary on a short-term intermittent basis. If you or a loved one is nearing the need for long-term care or already receiving long-term care, or if you have not done Long-Term Care Planning, Estate Planning, or Incapacity Planning (or had your Planning documents reviewed in the past several years), please call us to make an appointment for an initial consultation:

Fairfax Long-Term Care Planning: 703-691-1888
Fredericksburg Long-Term Care Planning: 540-479-1435
Rockville Long-Term Care Planning: 301-519-8041
DC Long-Term Care Planning: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.