Does Medicare Cover Hospital Observation Services?

In this article...
  • Medicare covers hospital observation services, but not in the same way it covers inpatient admissions. Read this important Medicare guide to better understand your benefits and any potential costs you may incur.

You go to the hospital with chest pain, and the doctor on call is trying to decide whether to admit you as an inpatient or discharge you. Perhaps they need to run more tests or see how you react to certain medications. During this waiting period, you’ll need what’s called observation services, which are short-term assessments and treatments to keep you stable.

This article discusses how Medicare covers hospital observation services and what you may owe.

Who Typically Receives Hospital Observation Services?

You may require observation services if you present to the emergency department and require a significant period of treatment or monitoring before your doctor can determine whether you need to be admitted. This is often a complex decision.

Your doctor may only admit you if they anticipate you’ll require medically necessary inpatient care that spans two midnights. If you don’t meet this criteria, you may be discharged.

How Long Might I Receive Hospital Observation Services?

In most cases, it will take 24-48 hours for your doctor to decide whether to admit or discharge you. In rare cases, you’ll receive reasonable and necessary outpatient observation services for more than 48 hours.

Note that you can receive observation services anywhere in the hospital, including the emergency department or anywhere else. The goal with observation services is to keep you safe while your doctor evaluates your condition so they can decide whether to admit you.

Does Medicare Cover Hospital Observation Services?

Yes. Medicare Part B covers all medically reasonable and necessary hospital observation services ordered by a physician. Because it’s covered by Medicare Part B, it means Medicare Advantage (Part C) plans also cover hospital observation.

Are There Every Scenarios In Which I Might Be Responsible For Out-Of-Pocket Costs?

Yes. It all depends on your patient status (i.e., inpatient or outpatient) and whether it changes during the course of your stay.

While you receive observation services, you’re considered an outpatient, meaning Medicare Part B covers your services, including your doctor services and hospital outpatient services (e.g., lab tests and IV medication). This is true even if you end up staying overnight in a hospital bed. You’re still considered an outpatient as far as Medicare is concerned. During this time, you’ll owe your Part B deductible and coinsurance. In 2021,  you pay $203 for your Part B deductible. After you meet your deductible for the year, you typically pay 20% of the Medicare-approved amount.

If your doctor determines that you need to be admitted as an inpatient, your status changes only once your doctor writes an order for your admission. That’s when Medicare Part A begins to cover your hospital services while Medicare Part B covers your qualified doctor services. Part A actually pays for your inpatient admission as well as all related outpatient services provided during the three days before your admission date.

For Part A services, you’ll owe the Part A deductible and coinsurance. In 2021, you pay a $1,484 deductible. If you’re admitted for 60 days or fewer, you don’t pay a coinsurance. However, for days 61-90, you pay a $371 coinsurance per day. For days 91 and beyond, you pay a $742 coinsurance per lifetime reserve day. Beyond lifetime reserve days, you’re responsible for all costs.

A Medicare Supplement Insurance plan (also called Medigap) can help pay for all or some of these out-of-pocket Medicare costs. Depending on the type of Medicare Supplement plan you have, your plan may pay for all of your Part A coinsurance and deductible costs and/or your Part B coinsurance costs and more. Medicare Supplement plans are accepted by any hospital, doctor and provider who accepts Medicare.

How Do I Know if or When My Status Changes?

Ask your doctor. It’s important to understand your status because it may affect your benefits and how much you’ll owe.

What Is a Medicare Outpatient Observation Notice (MOON)?

A MOON is a notice that lets you know you’re an outpatient in a hospital. You must get this notice if you receive hospital observation services for more than 24 hours. The MOON will explain why you’re receiving observation services and how this may affect what you ultimately pay.

What if I Have Additional Questions?

The best option is to contact your hospital’s billing department. They can explain how your status affects what you owe, including whether your Part A or Part B deductibles and coinsurance may apply. If you have a Medicare Advantage plan (Medicare Part C), you can reach out to your plan carrier for coverage details.

About the Author

Lisa Eramo is an independent health care writer whose work appears in the Journal of the American Health Information Management Association, Healthcare Financial Management Association, For The Record Magazine, Medical Economics, Medscape and more.

Lisa studied creative writing at Hamilton College and obtained a master’s degree in journalism from Northeastern University. She is a member of the American Health Information Management Association, American Academy of Professional Coders, Society of Professional Journalists, Association of Health Care Journalists and the American Society of Journalists and Authors.

Lisa currently resides in Cranston, Rhode Island with her wife and two-year-old twin boys.

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