Inpatient or Observation: Know the Difference

Knowing difference between inpatient and observation (outpatient) is important because Medicare pays differently for each.  A patient that is admitted for observation is considered outpatient.  Just because a patient stays overnight in the hospital doesn’t necessarily mean that person is considered inpatient.  That patient may be under “observation” status.

A patient’s admission status will affect how Medicare covers skilled nursing services.  Medicare has a minimum of a three-day hospital stay as an inpatient before it will cover the cost of skilled nursing care.  Observation stays do not count toward the three-days. Not knowing the difference could cost a person thousands of dollars.

Example:  Cheryl fell and broke her hip.  This resulted in a three day stay in the hospital.   After leaving the hospital, Cheryl spent several weeks in a skilled nursing center recovering.    Cheryl received a bill for her time in the skilled nursing center and was in shock because she thought Medicare covered this service.

Upon investigating, Cheryl learned that one of her initial days in the hospital was under observation status.  Cheryl’s hospital admission status affected what Medicare would cover.  Medicare requires a minimum three day inpatient stay before it will cover the cost of the skilled nursing care.   Because Cheryl did not have a three day inpatient stay, Medicare would not cover the cost.

What can you do to protect yourself?  When you or a family member arrives at the hospital, you can ask questions like:

  • Is the status of the patient going to be inpatient or observation?
  • How long will the hospital stay be?
  • Is there going to be a need for skilled nursing care after the patient is discharged?