Look Out for Observation Care
Generally, no one wants to be admitted to a hospital, but the use of observation care (also called observation status) — during which a patient may be in a hospital room with hospital services but is not officially admitted — has raised concerns for both patients and providers. Anyone can be under observation care, but it is of particular concern for Medicare beneficiaries, who may lose certain benefits and pay higher costs.
Skilled nursing facility eligibility
The most significant impact of observation status is typically on patients who require post-hospital care in a skilled nursing facility (SNF). To qualify for SNF rehabilitation under Medicare, a beneficiary must first spend three consecutive days in a hospital as an inpatient (counting the day of admission but not the day of discharge), and a doctor must recommend SNF treatment. Days under observation do not count toward the three-day minimum.
Part A or Part B?
Medicare Part A pays inpatient hospital charges, including prescription drugs, above the annual deductible ($1,676 in 2025), with no coinsurance for the first 60 days. Outpatient services, including observation care and physician services, are covered under Medicare Part B after meeting the annual deductible ($257 in 2025), with 20% coinsurance for each service and no cap on total expenditures. Outpatient prescription drugs may be covered under Medicare Part D, which also has out-of-pocket costs.
Although the deductible is higher for Medicare Part A than for Part B, the coinsurance and copays can add up, and some patients may pay more for observation care than they would for inpatient care, particularly if they do not have a supplemental policy (Medigap) to cover Part B costs. For patients who do not have Part B or other insurance, the costs could be catastrophic. Patients with a Medicare Advantage Plan may have different costs and coverage.
Anyone can be under observation care, but it is of particular concern for Medicare beneficiaries, who may lose certain benefits and pay higher costs.
Changes and appeals
Under Medicare guidelines, hospitals should generally admit patients if they are expected to be under care for at least two midnights and must provide detailed oral and written notice to any patient who receives outpatient observation services for more than 24 hours. Your doctor may be able to change your status before you are discharged, but doctors must follow Medicare guidelines and changes are not easily made. Starting in early 2025, patients who have been admitted to a hospital and then changed to observation care (and meet certain other criteria) can appeal the decision while in the hospital, after discharge, or retroactively back to 2009.
For more information, see medicareadvocacy.org and medicare.gov.