If the hospital assigns a patient to observation care, there may be financial implications.

For example, a 66-year-old Medicare patient, because of chest pain, has a stent placed in one of his or her coronary arteries. Observation is needed for the first day after this procedure. Medicare pays the hospital a lesser amount for those 2 days in the hospital than if the patient had been admitted for a regular stay. That is, the hospital gets paid for the care they gave. 

If a complication occurs, requiring several days in the hospital, the patient may need follow-up care in a skilled nursing facility (SNF). Medicare rules state that a patient can only be admitted to a SNF from a hospital in which he or she was receiving regular care. This admission to a SNF from observation means that the patient, not Medicare, is responsible for the SNF bill. 

Observation care poses other financial problems. For example, a person with a serious infection needs antibiotic infusions, but has no home to go to, no one to help with infusions, and no insurance. The hospital needs to take care of this person between antibiotic infusions. Medicare reimburses for the first 2 days of observation care, but for no days beyond that. The hospital can’t get more reimbursement by admitting the patient as a regular care patient because the level of care required wouldn’t justify doing so. The hospital swallows the cost of uncompensated care. 

Observation care is administratively considered out-patient care, even though the patient is “in the hospital.” The financial rules concerning observation care encourage this care because it’s cheaper for Medicare and often better care.  But observation care is also often more expensive for the patient.

If you are concerned about observation care status, talk with the hospital's financial person or the social worker before you leave the hospital.