Observation or inpatient? Patients should check as status has major Medicare ramifications

A local reader was unpleasantly surprised to learn that Medicare does not cover hospital observation, where emergency department patients are sometimes placed for several days. She was also unhappy to learn that patients in observation are not treated by their family doctors.

Observation is an "in the hospital but not an inpatient" status used for some emergency department patients. These patients may go home with a four- or five-figure hospital bill, most of which is not covered by insurance.


Can Medicare legally do that? Yes, and the use of observation is growing.

The National Institutes of Health documented a 34 percent increase in the number of observation stays versus inpatient hospital admissions between 2007 and 2009. A subsequent government investigation found that observation patients often have the same health problems as patients admitted to the hospital, according to an August 29, 2016 Kaiser Health News report.

Observation is "an assessment period" to determine whether a patient meets criteria for inpatient status, said Jamie Linfield, nurse case manager at Carroll Hospital. She said the staff frequently tells patients, "If you have questions, call your Medicare representative or health insurance representative."

Stephanie Reid, vice president for patient care services at Carroll Hospital, said observation patients receive an information sheet that explains the status and provides contact information, including the hospital business office, for payment questions. But patients are sick, and may not read or absorb all the information, she said.

Patients under observation may stay in the emergency department or in another area of the hospital for several days, but unless they are formally admitted, Medicare considers them outpatients.

Key question: Did the doctor write an order to admit the patient to the hospital? If no, Medicare generally covers part of doctors' services, but pays nothing for hospital charges. Read more at

Medicare payment changes for observation patients several years ago were followed by lawsuits arguing that patients were held too long in the status and/or should have been admitted as inpatients. Congressional briefings followed.

The Centers for Medicare and Medicaid Services (CMS) then adopted the "two-midnight rule" for insurance coverage: Patients whose doctors expect them to stay in the hospital through two midnights should be admitted as inpatients, while those expected to stay for shorter periods should be kept in observation.

At Carroll and many other hospitals, observation care is typically overseen by a group of hospitalist physicians rather than patients' primary care physicians, Reid said. The reason is that observation patients should be checked frequently, she said.

"How would a physician who is running a busy practice ... see a patient in observation every few hours?" Reid said. "It would be really difficult for them to be in the hospital and [also] taking care of patients in their practice."

Patients who learn they are on observation status while in the hospital can ask the doctors to admit them as inpatients. Winning Medicare coverage by appealing after leaving the hospital is increasingly difficult, according to the Center for Medicare Advocacy (

Donna Engle is a retired Westminster attorney. Reach her with questions or feedback at 410-840-2354 or Her column, which provides legal information but not legal advice, appears on the second and fourth Sunday each month in Life & Times.