Medicare reports, “Staying overnight in a hospital doesn’t always mean you’re an inpatient.”  In fact, the default is that you’re an outpatient. It takes a formal order from a doctor, who has to jump through some hoops, to get you officially termed an inpatient.  And the hospital has to agree.

If you’re not an inpatient, you are in observation status, where you may remain for days.  You get the same surgery, x-rays, nursing care, and so forth either way.  But Medicare’s payment rules differ sharply depending on which label your stay carries.  About 10 percent of Medicare patients’ hospital stays are termed observation rather than inpatient visits. 

As an inpatient, you pay a hospital deductible (in 2015, $1,260 per benefit period, which is the length of the hospital stay plus 60 consecutive days out of the hospital afterwards). If you are in the hospital for more than 60 days, you will have copays as well.  If you carry secondary Medigap insurance, it may cover some or all of the deductibles and copays.

As an outpatient (observation status), you will find that Medicare hospital insurance does not apply.  Medicare pays as if the services you get are delivered on an outpatient basis.  Said another way, after you pay your deductible ($147 in 2015), Medicare pays 80% of the approved charges for each service you get. You and/or any Medigap insurance you carry may have to pay the other 20%.

A financial issue that can be much bigger involves care in a skilled nursing facility after you leave the hospital.  Medicare will pay 100% of the approved costs of a stay in a skilled nursing facility for the first 20 days after a qualifying hospital stay, and a portion of the costs for days 21-100.  This benefit can easily amount to $10,000 - $15,000. 

But what is a qualifying hospital stay?  It is one that involves “a 3-day minimum, medically necessary, inpatient hospital stay.”  The key word here is “inpatient.”  If you are in the hospital for four days, but are in observation status for two of those days, then you will have only two days as an inpatient – and Medicare will pay nothing for any skilled nursing facility days you need after your hospitalization.

Where did this 3-day inpatient rule come from?  It was established fifty years ago, in 1965.  The Affordable Care Act, made into law in 2010, had no bearing on creating this rule.

Medicare offers a document (at times itself confusing) meant to explain inpatient versus observation status.  You can find it online by searching on Are You a Hospital Inpatient or Outpatient?

Next week’s column will discuss steps you can take to protect yourself.