Observation Status

Observation status is a hospital classification that says you are in a bed, in a gown, being monitored and treated, but you are officially an outpatient. You have not been admitted. The hospital uses it when a doctor needs more time to decide whether you need a full inpatient stay. Two nights on a hospital floor can be observation. The care looks identical. The billing is not.

The difference shows up in three ways. First, an observation stay is billed as an outpatient service, with hourly observation charges and separate lines for each test, instead of one DRG payment, so the bill is often itemized and long. Second, your cost-sharing follows the outpatient rules on your plan, which can mean a bigger share than an inpatient admission would have cost you. Third, for people on Medicare, a stay in observation does not count toward the three-day inpatient requirement for covered skilled nursing care afterward, which has left families with $10,000 rehab bills they thought were covered. Hospitals must now give Medicare patients a written notice, the MOON, when they have been in observation more than 24 hours. Commercial plans have no such rule, and most patients never learn their status until the bill comes.

The takeaway: any time you are in a hospital bed, ask, "Am I admitted, or am I in observation?" Ask every day, because the status can change. If the answer is observation and you expect to need rehab or a long stay, ask the attending physician whether admission is appropriate.