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Beware of "Outpatient" Observation Status

Posted by Nina Whitehurst | Sep 03, 2019 | 0 Comments

The Center for Medicare Advocacy is partnering with the John A. Hartford Foundation to help people caught in the web of “outpatient” Observation Status.  According to their infographic available here, a hospital billing classification of "outpatient", sometimes also called "observation status", can result in Medicare patients paying out of pocket for hospital stays, hospital prescriptions and even nursing home care. 

The trouble is, most people think (understandably) that "outpatient" refers to where a patient is receiving care, but that is not the case.  You can be in a hospital bed and still be considered "outpatient".  "Outpatient" is a billing code that hospitals use to protect themselves from overzealous auditors and Medicare readmission penalties.  Patients who don't have Medicare Part B end up being responsible for the FULL COST of the hospitalization.

Furthermore (as if the foregoing wasn't bad enough), starting in January 2020, Medicare will reimburse home health agencies at a lower rate when they care for patients who have not been admitted to a hospital first.  The Centers for Medicare and Medicaid Services (CMS) estimates that it will pay home health agencies approximately 19 percent more for a patient who hires the home health agency directly after leaving a hospital than a patient who was never in the hospital or was only an outpatient.  (The Center for Medicare Advocacy calculates that the disparity could be as high as 25 percent.)

Patients who had not been admitted to the hospital for at least three nights are not eligible for Medicare reimbursement of a limited amount of skilled nursing care and typically head home instead to continue care with Medicare's home health care benefit.  

But a home health agency that cares for a patient who was in the hospital under observation will be reimbursed as if the patient had been an outpatient. This lower reimbursement rate means that home health agencies may be reluctant to provide care for patients who were under observation status or who haven't been in a hospital at all. 

Accordingly, if you are hospitalized, it is important to learn whether you are admitted or under observation. Hospitals are required to provide notice to patients if they are under observation for more than 24 hours. 

Here is what you can do to protect yourself and your pocketbook:

  • Take action at the beginning of a hospital stay to try to stop "observation" status before it starts by asking the hospital doctor to admit you as an "inpatient" based on needed care, tests and treatments.
  • Ask your regular physician to contact the hospital doctor to support this request.

For more information and additional suggestions, click here and here.

About the Author

Nina Whitehurst

Attorney at Law Nina has been practicing law for over 30 years in the areas of estate planning, real estate and business law She is currently licensed in Alaska, Arizona, California, Colorado, Oregon and Tennessee. Her Martindale-Hubbell attorney rating is the highest achievable: 5 stars in peer...


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