Why Medicare May NOT Cover Your Rehab Stay

A hospital stay can feel stressful enough without finding out afterward that Medicare may not cover the care you expected. In this episode of Medicare Matters with Mackenzie, independent Medicare advisor Mackenzie Anderson breaks down one of the most confusing — and expensive — Medicare rules beneficiaries face: observation status versus inpatient hospitalization.

Many Medicare beneficiaries assume that if they spend multiple nights in a hospital bed, they are automatically considered admitted patients. Unfortunately, that is not always true. McKenzie explains how observation status works, why it matters for Medicare Part A and Part B coverage, and how it can affect eligibility for skilled nursing facility care after a hospital stay.

This episode also covers the Medicare Outpatient Observation Notice (MOON), the 3-day inpatient requirement for skilled nursing facility coverage, potential out-of-pocket costs, and important questions every Medicare beneficiary or family member should ask while in the hospital.

If you or a loved one are on Medicare, this is information you need to know before a medical emergency happens.

📍 Learn more about Premier Medicare Solutions
📞 Call: 512-599-9527
📧 Email: Mackenzie@PremierMedicareSolutions.com

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⏱️ Chapters
0:00 Introduction
0:58 The Hospital Scenario Most Medicare Beneficiaries Face
2:06 Observation Status vs Inpatient Explained
4:02 The Medicare 3-Day Rule for Skilled Nursing Coverage
6:18 Why Observation Status Can Lead to Huge Bills
8:33 Prescription Drug Costs Under Observation Status
10:18 What Is the MOON Notice?
12:00 What To Do If You’re Under Observation Status
14:12 Medicare Advantage vs Original Medicare Differences

Transcript

SPEAKER_00 0:10

Welcome back to Medicare Matters with McKenzie. I'm McKenzie Anderson, independent Medicare advisor and founder of Premier Medicare Solutions, and I'm so glad you're here today. If you are a Medicare beneficiary or if you have parents or a spouse on Medicare, today's episode could literally save you thousands of dollars. And I'm not exaggerating. This is one of those topics that I wish every single Medicare beneficiary knew about before they ever stepped foot into a hospital. Because by the time most people find out about it, it's too late to do anything about it. So today we're talking about observation status versus inpatient hospitalization. What the difference is, why it matters enormously for you, for your Medicare coverage, and exactly what to do if you or a loved one ends up in the hospital. So let's get into it. Alrighty, so here's the scenario. You or your spouse isn't feeling well, maybe it's chest pain, maybe it's a fall, or maybe it's dizziness or confusion. You call 911 or you drive to the emergency room, you get checked in. A few hours later, they tell you they want to keep you from monitoring. You get moved to a room, you're in a hospital bed, you have a nurse assigned to you, you're getting medications and tests, and you're eating hospital food, which let's be honest is nobody's highlight. From every angle, you look like a hospital patient. You feel like a hospital patient. Your family assumes you're a hospital patient. And here's why tells you in that moment. You might not be classified as one. That's the observation status trap, and it happens to Medicare beneficiaries every single day across this family. So let me break down what these two classifications actually mean. Inpatient status means that a physician has made a formal decision to admit you to the hospital. There's a specific order that gets written, Medicare Part A, your hospital insurance, is what kicks in for your inpatient stay. The Part A covers your room, your nursing care, your meals, your medications during the stay, and most of the associated services. You'll owe your Part A deductible, but beyond that, you have substantial coverage. Observation status is something entirely different. Under observation, you are technically classified as an outpatient, even if you are physically inside the hospital, even if you're in an inpatient-style room, even if you're there for multiple days. The hospital is monitoring you and gathering information to determine whether your condition warrants a formal admission. Until that decision is made, or if it's never made, you remain in outpatient status. And that classification, inpatient versus observation, determines almost everything about how Medicare pays for your care. Here's where it gets really serious. And I want you to pay close attention to this part. So Medicare will cover care in a skilled nursing facility, SNF, or as we call it, SNF, after a hospital stay. But there's a requirement. Medicare requires a qualifying inpatient hospital day of at least three consecutive days before it will cover skilled nursing facility care. That's three midnights as an admitted patient. Now, here's the problem. If you spent three days in the hospital under observation status, those days do not count. It doesn't matter that you were physically in the building, it doesn't matter that you received the same care as a person in the neck room next to you who was formally admitted. Under Medicare's rules, your time under observation status is outpatient time and it doesn't satisfy that three-day inpatient requirement. So what happens? You get discharged, the hospital recommends a skilled nursing facility for you for rehabilitation, maybe after a hip replacement, a stroke, or a significant fall. Your family assumes Medicare will cover it because you were just in the hospital for several days. And then you find out it won't. Because your days were under observation, not inpatient admission. Skilled nursing facility care without Medicare coverage is not cheap. We're talking about costs that can exceed hundreds of dollars per day. For someone who's on a fixed income, that is a devastating financial surprise to receive at one of the most vulnerable parts of your life. So, and the financial impact doesn't start at the skilled nursing facility. It actually starts during the hospital stay itself. When you're under observation status, your care is billed under Medicare Part B, not A, B as a boy. Part B covers outpatient services and it works differently. Under Part B, you're generally responsible for 20% coinsurance after you're deductible on each individual service. There's no cap on that, the way there might be with a Medicare supplement plan designed around hospital stays or a Medicare Advantage plan. And here's one thing that really surprises people prescription drugs. When you're an inpatient, your medications are covered under Part A as part of your stay. When you're under observation, your medications may need to be covered under your Part D drug plan, your standalone drug coverage. Or the drug coverage in your Medicare Advantage plan. But here's the catch: many hospitals aren't set up to bill Part D directly during a stay. So, in some cases, patients under observation status have been asked to pay out of pocket for their medications at retail prices and then seek reimbursement for them afterward. That process is complicated and not guaranteed. The rules around observation billing status are complex, and how they play out can vary by situation and by facility, but the point is that observation status introduces cost and coverage and certainty that simply doesn't exist the same way under a formal inpatient admission. Now, the good news is that there is a federal protection in place, and you do need to know about it. In 2016, Congress passed the Notice Act, which created a requirement for hospitals to notify Medicare beneficiaries when they are placed under observation status. It's a writ the written notice that results from the law is called the Moon, M-O-O-N, which stands for Medicare Outpatient Observation Notice. So if you are a Medicare beneficiary and you have been placed under observation status for more than 24 hours, the hospital is required to give you this written notice. It has to explain that you're an outpatient, not an inpatient, and it has to include information about what that means for your cost sharing in your potential skilled nursing facility eligibility. Here's my advice: don't wait for them to bring it to you. Ask for it. If you've been in the hospital more than 24 hours and you haven't been told clearly whether you're admitted as an inpatient, ask your nurse, ask your patient advocate, ask the case manager. Someone on the care team can tell you your status. The moon notice is your right, so use it. So, what happens if you ask and you find out that you are under observation status? You have some options and time does matter. First, ask whether your status can be changed. Sometimes a physician can review the case and issue an inpatient admission order if the clinical criteria support it. This is worth pursuing, especially if you anticipate needing skilled nursing facility, care after discharge. The hospital's case management team can help facilitate that conversation. Second, understand what your specific plan covers. If you have a Medicare Advantage plan, the rules can look different from original Medicare. Some advantage plans have provisions that are more flexible around hospital stays. So call your plans member services, your agent, or me, and ask how observation status affects your coverage. Third, if you disagree with an observation classification, you do have the right to appeal. CMS, Centers for Medicare and Medicaid Services, they have a process for this. It's not always fast and it's not always successful, but it is an option, and knowing that it exists is important. And fourth, this is the one I really want you to take home. Have this conversation before a crisis happens. Talk to your Medicare agent now. Talk to me. Review your coverage now. Understand what your plan does and doesn't cover for hospital stays and what it requires for skilled nursing facility eligibility. Because when you or a family member is in the hospital, that's not the time to be learning this for the first time. Let me give you a short list of questions to keep in your back pocket. Or better yet, save this episode so you can come back to it. So if you or a loved one is hospitalized, ask these questions as early as possible. One, am I formally admitted as an inpatient or am I under observation status? Question number two. If I am under observation, what would need to happen for that status to change to inpatient? Three, how many qualifying inpatient days have I accumulated and will this day count toward skilled nursing facility eligibility under Medicare? Four, have I been given the moon notice? If not, can I receive it now? And five, can I speak with a patient advocate or case manager about my status and my coverage? These aren't difficult questions, they're completely honestly reasonable questions, and any hospital that serves Medicare patients, which is the majority of them, should be able to answer them. Look, I know Medicare is complicated, but that's why I do this work. Because nobody should have to navigate a $3,000 surprise bill alone during one of the hardest moments of their life. So if today's episode raised any questions about your own coverage, I encourage you to reach out. At Premier Medicare Solutions, we work with Medicare beneficiaries across the coverage spectrum. And I'm here to help you understand exactly what you have and exactly what to do with it. You can find us at Premier Medicare Solutions.com. You can call me 512-599-9527, or you can email me at McKenzie M-A-C-K-E-N-Z-I-E at Premier Medicare Solutions.com. Now remember, Solutions has an S on it. If you found it helpful, please share the episode with somebody that you know is on Medicare or has a parent that's on Medicare. This is the kind of information that genuinely changes outcomes for people. So thank you so much for spending part of your day with me. I'll see you next episode on Medicare Matters with McKenzie. Take good care. Thanks for listening to another episode of the Medicare Matters podcast with McKenzie. Please make sure to subscribe wherever you get your podcast so you don't miss an episode. Please also leave a review as that helps me reach more people that can benefit from this podcast content. If you have questions or topics that you want me to cover for a future episode, please email them to McKenzie at Premier Medicare Solutions.com.