Inpatient Versus Observation: Why You Should Know the Difference

  • Originally published June 3, 2014 , last updated November 30, 2016
Inpatient Versus Observation: Why You Should Know the Difference

Whether a client is “admitted as an inpatient” into the hospital or “held for observation” can be costly, even though these terms sound similar. It’s important for you, as their trusted agent, to understand the difference and the emerging trend in how hospitals are billing.

Typically, when a Medicare recipient is admitted as an inpatient into the hospital, the care is covered under Medicare Part A. However, when a Medicare patient is held for observation, it’s covered under Medicare Part B as outpatient services.

Medicare Part B’s outpatient services can have added expenses not typically found under Medicare Part A services. These added expenses may include co-pays for doctors’ fees and each hospital service, as well as any routine drugs the hospital provides for maintenance or chronic conditions. If a patient has coverage in addition to Medicare, these costs are usually covered by that supplemental plan.

Here’s another important point about the difference between the two: if a patient is admitted for observation and needs skilled nursing care after release, he or she won’t receive benefits under Medicare — even if the doctor orders it. However, if the patient is admitted as an inpatient and needs skilled nursing care — after the Medicare-required three-day hospital stay — it will be covered under Medicare.

A trend on the rise

The number of Medicare patients entering hospitals under observation has increased 69 percent in five years, according to federal statistics reported by Kaiser Health News. At the same time, Medicare hospital admissions have declined slightly.

Why, you ask?

Money — if a Medicare client enters the hospital as an inpatient and it should have been coded as observation, Medicare may not reimburse the hospital. If a Medicare client is admitted under observation and has to re-enter the hospital again within a 30-day timeframe, it will not be counted against the hospital as a re-admission. Medicare can withhold a percentage of payment from hospitals with increasingly higher re-admission rates. So hospitals, fearing they won’t be reimbursed, would rather place your clients in observation.

How can you prevent this from happening to your clients?

Advise your clients to ask the hospital how they are coding their stay. Unfortunately, the hospital does not have any legal obligation to tell them. But tell your client to ask anyway. If the hospital refuses to disclose the information, your clients should wait until they receive their Medicare summary notice from their stay and determine if they owe anything out of pocket. If they do owe Medicare and feel they should have been admitted as an inpatient instead of for observation, they can appeal the charges. The appeal process is on the summary notice.

For more information on this trend and others impacting Medicare Supplement, call your marketing consultant at 1-877-645-0147.

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