Observation Status Change: Imperfect, But Much Better

Fewer Chances for Error
It used to be that a patient would need to be specifically determined to have "inpatient" status in order to be covered by Medicare Part A. Observation stays are NOT covered. It is conceivable to have stayed in the hospital for a long period of time, and not be considered to be an "inpatient" stay. Thereafter, that same patient could have been admitted to a Skilled Nursing Care Facility, in which case the cost of that stay would also be uncovered under Medicare Part A. Long-term care insurance would also not be effective in this case, because claims are only good, after Medicare has paid. Since Medicare has not paid, then LTCi would also not pay to beneficiaries.

CMS Rule Change Begins October 1
If you stay at the hospital over 2 midnights, then you will be considered to be inpatient status. This will reduce the number of cases when there are extended stays in the hospital under observation status, followed by Skilled Nursing Facility stays, all uncovered by Medicare Part A.

Perfect? No.
There are still situations in which a patient could be uncovered by Medicare Part A. 2-day inpatient stays (as well as 1-day) are not covered by Medicare Part A. Observation stays for 1 day are not covered under Medicare Part A. Audits for stays longer than 2 days will no longer need to be audited, and subjected to change to observation status, since the presumption will be that it is an inpatient stay. That will greatly reduce the amount of unexpected charges resulting for observation stays.
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