Keep Hospital Stays Affordable – Observation


Patient Advocacy when hospitalized with OBSERVATION STATUS | Holistic Aging
Transitions of care – Inpatient or Observation?

The use of “Observation Status” – treating certain hospitalized Medicare patients as outpatients when their care is indistinguishable to the consumer, family and patient from that of formally admitted inpatients – continues to garner a considerable attention of the Life Care Managers at Holistic Aging advocating for their clients. It remains an unresolved problem that has serious financial consequences for Medicare patients and their families despite recent public and Congressional attention.


The financial implications OBS status in a hospital:

Outpatient Observation Status is paid by Medicare Part B, while inpatient hospital admissions are paid by Part A. Thus, Medicare beneficiaries who are enrolled in Part A, but not Part B, are responsible for their entire hospital bill if they are classified as Observation Status.

Most significantly, patients will not be able to obtain any Medicare coverage if they need nursing home care after their hospital stay. Medicare only covers nursing home care for patients who have a 3-day inpatient hospital stay – Observation Status doesn’t count towards the 3-day stay (This rule most likely will not apply to those with a Medicare Advantage plan.)

When hospital patients are classified as outpatients on Observation Status, they may be charged for services that Medicare would have paid if they were properly admitted as inpatients. For example, patients may be charged for their medications. (Thus, people may want to bring their medications from home if they have to go to the hospital.)



1. Traditional Medicare vs. Medicare Advantage Program

Make sure you understand what care your loved one have and their rules. Most Medicare Advantage programs elect to have different “rules” than traditional Medicare with a Medigap supplement. Your approach is different for a Medicare Advantage insured. For more information on Medicare with a Medigap policy click here.


2. Gather all the Information You Can from Knowledgeable Sources

Find the ER Case Manager.  Make contact with this person when you are admitted to the ER if the hospital has one. They will be able to tell you the admission status of your family member including if they were admitted as an inpatient or Observational Status (OBS).  As a retired ER CM, I would speculate to say 80% of people over the age of 75 are being admitted to OBS status as they are not meeting admission criteria in their short ER stay.

If a connection was not made in the ER, determine the admission status of your family member within 12 hours of admission. From there, you can be proactive in assuring either a conversion to admission within “2 midnight’s” or discharge home. Case managers are the experts in status determination and are familiar with the nuances. They are the ideal professionals to partner with. They review the patient record, physician documentation, therapies, and test results to properly determine an observation status. Stay aware of post care alternatives from the beginning.  This is especially important if home is no longer a safe option.

If the family member has both a Social Worker Care Manager and a Registered Nurse Care Manager (RN CM) assigned, you want to speak with the RN CM. The RN CM are typically the ones reviewing the record and determining medical information. Sometimes, these positions are referred to as transitional care coordinators.


3. Ally Yourself with a Skilled, Knowledgeable Advocate

National guidelines are published in the Medicare Benefit Policy Manual for determining who is assigned to inpatient status, and who is assigned to observation status. These guidelines are vague yet complex and can change every year, so most hospital Care Managers(CM) and insurance companies use a service that publishes criteria to help them apply the guidelines to each patient. Two of the most popular services are McKesson’s InterQual Criteria and Milliman Care Guidelines. These inpatient and observation guidelines typically address two different types of criteria.

Consider hiring a Holistic Aging Life Care Manager. They are familiar with the guidelines most hospital Care Managers  and Insurance Carriers use. They can “talk the talk” to better advocate for your family member.

The first criterion is the severity of your illness (SI Criteria):

are you sick enough to need inpatient admission? Each criteria point has a whole slew of very specific evaluation points. This can include blood test results, X-ray findings, physical exam findings, and the types of treatments you’ve been prescribed.

Also, be aware in cases where there is not an ER CM. Your family member may be admitted as an inpatient upon arrival. In the morning, when a RN CM is assigned, the status can be converted to OBS. This is referred to as applying “Condition Code 44″. Your family member’s assigned RN CM will evaluate the case by look at the doctor’s findings, diagnosis, results from tests and studies, and prescribed treatment. Then they will compare it to these national guidelines. He or she will then use those guidelines to suggest to the doctor to assign either observation status, or inpatient status.

The second criterion is the intensity of the services you’re requiring (IS Criteria):

is the treatment you need intense enough or complex enough that a hospital is the most cost efficient place you can safely receive that treatment?


4. Get Vocal When OBS Beyond Two Midnight’s is Imminent :

Address your concerns with a CM with the information you’ve learned. They can help to assure the conversion to inpatients occur before the deadline.

Transitions of Care
Transitions of Care

If you are not able to convert to inpatient status and can safely go home. Request a discharge and provide the CM with a safe discharge plan they have discussed with the family

If you are not able to convert to inpatient status and discharge home is not safe there are usually two scenarios:

A. Frequently, an inability to convert to inpatient status is due to poor documentation by those providing care.

A Life Care Manager can resolved this by determine the missing information from the chart and notifying staff.

B. The CM/hospital may insist on keeping your family member in the hospital under OBS. Yet, they still are uncooperative in admitting them as a inpatient.

 A Life Care manager can resolve this by ask for a written notice of their insistence. Next, the Life Care Manager can advise your family member to appeal the Observation Status. At this point it’s clear that the care is “medically necessary” and appears to be “inpatient hospital level of care.”

5. After a OBS Hospital Stay

The patient might be able to appeal. Unfortunately, winning Medicare coverage in Observation cases is difficult. This is why its imperative to be prepare and protect yourself as much as possible while in Hospital Care. Try to get the patient’s physician to assist. Click here for details on how to appeal.




Observation Status has the potential to cause financial and physical harm to families and clients. Those with traditional Medicare insurance when they are hospitalized, especially those who need long-term care, are at risk. Congress or CMS should act now to solve this problem. Not all patient advocates have the insurance expertise to understand these implications. However, our Life Care Manager’s do.



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