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“Observation Status” – In Spite of New Laws, What You Don’t Know Can Still Cost You!

You have an urgent medical problem, so you go to the hospital, where you remain for several days. Your doctor then recommends a short stay in a nursing home for rehabilitation.  Because you’re covered by Medicare, you assume those nursing home costs will be paid for, since Medicare typically covers up to 100 days of rehabilitative care following surgery or some other qualifying medical procedures.

So imagine how you would feel, after returning home, to get a bill for the entire amount of the nursing home stay. That’s what’s happening to thousands of seniors. The reason: the hospital never formally admitted you as an inpatient. Instead you were kept under observation status, and because of that, Medicare will probably decline to pay for your rehabilitative care.

On our radio program and in our law practice, we receive many calls from people who have experienced this shock. Now finally there is a federal law on the books that took effect last year: it requires hospitals to inform patients that they are being kept under observation status, which leaves them personally liable for any subsequent charges for a rehabilitative stay in a nursing home, and not being admitted as regular patients. This new law theoretically alerts the patient and allows them to consult with their physician, hopefully to get the hospital to change their status to that of an in-patient so any future rehabilitation will be covered by Medicare. The new law went into effect in August of 2016, and in good Congressional form it has a catchy name: the “Notice of Observation Treatment and Implication for Care Eligibility Act,” or NOTICE Act for short. But the new rules have plenty of loopholes, as you’ll see below.

This problem, which until now has not been widely publicized, was highlighted over a year ago in this revealing article on the website of the New York Times. It spotlights the story of an 85 year old Pennsylvania woman who was hospitalized for six days of “observation” as a result of a fall. She then spent five months in rehabilitation in a nursing care facility, most of which should have been covered by Medicare. Instead she received a bill from the nursing home for $40,000. Medicare refused the charge because the hospital had never formally admitted her.

What’s going on here? According to the New York Times, it all has to do with the economics of modern health care. “Hospitals have been keeping patients…in limbo – in ‘observation status’ – for fear of being penalized by Medicare for inappropriate admissions,” reports the Times. Medicare won’t pay for nursing home stays following hospitalization unless the patient has been in the hospital for at least three consecutive days – and days spent “under observation” don’t count. No wonder patients and their families are feeling blindsided.

The NOTICE Act requires hospitals to tell any patient who stays longer than 24 hours that they are under observation status and that any future rehabilitation may not be covered by Medicare. This law passed with strong bipartisan support, and proponents predicted that the law would require hospitals to issue some 1.4 million notices a year. But in our view, and that of most experts in senior health care, the more important next step is to change the law so that all time spent under observation counts toward the three-day Medicare qualification for rehabilitative care. Until then, patients and their families have got to be on guard to avoid major sticker shock after Mom or Dad comes home from a temporary stay in a nursing care facility. In fact, if you really want to dive deeply into the details of the NOTICE Act and some of the problems with it, this article on the website of the Center for Medicare Advocacy provides helpful if somewhat complex background information. The bottom line in our view is that the protection for the patient under the revised law remains inadequate. (In Washington State in 2016, a proposed state law to require better patient notification of observation status passed the House unanimously. However, the bill died in the Senate.)

By the way, this issue is still very much in the headlines, as this article from CBS News will attest.  It’s called “Medicare billing: Hospital ‘observation’ can cost you,” and it describes the exact type of circumstances as the New York Times article from last year. This article just appeared this week, and it’s clear that very little appears to have changed when it comes to this controversy. If you or a loved one is facing any sort of hospitalization that may entail release to a rehabilitation facility, we encourage you to read the article in the New York Times or the one from CBS News, then inform yourself. These loopholes need to be closed! There are class-action lawsuits in the works, but until the rules are clearly changed, make sure you ask the right questions or you could be in for a shockingly expensive surprise.

(The Center for Medicare Advocacy, in an effort to better inform consumers, produced a handy one-page Infographic on the issue of observation status. To view this helpful information, click this link.)

If you need advice on any aspect of retirement – medical needs, legal affairs, financial security, or housing choices – we here at AgingOptions stand ready to be your advocate. You are welcome to contact us at any time for a consultation concerning any particular need you may have. One of our particular specialties is to work with clients to help them develop what we call a LifePlan, a retirement plan which takes all aspects of retirement into account, and helps you face the future with confidence. You can quickly and easily find out more about LifePlanning by registering to attend one of our highly popular LifePlanning Seminars, offered without cost or obligation. In just a few information-packed hours spent with Rajiv Nagaich, you’ll gain a brand new perspective on the process of planning for a fruitful and secure retirement.

You can register online for a LifePlanning Seminar near you by clicking here for our Upcoming Events page , or by calling our office during business hours. Don’t face the daunting task of retirement planning alone! With the professional team here at AgingOptions as your guide, you’ll discover a new optimism about your future years. It will be our pleasure to serve you.

(originally reported at and


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