Observation Rule

In recent years, families around the country have been blindsided by thousands of dollars in hospital and nursing home charges they thought would be covered by Medicare. Instead, because the patient was placed “under observation” during the initial hospital stay, families have been left to cover the cost.

The problem is this: while most hospitals make no distinction between the care provided to an inpatient and the care given to a patient under observation, observation status is an outpatient designation.

Patients who are under observation sleep in the same beds, see the same nurses and doctors, receive the same care and get the same tests as those who are admitted as inpatients. But they are billed differently.

To qualify for Medicare Part A to pay the bills, a patient must spend three consecutive nights (what many refer to as the “three midnights rule”) as an admitted inpatient to qualify for skilled nursing care upon discharge.

This means Medicare treats observation stays entirely differently when it comes time to pay.