By Sara Duris
Q. I don’t understand how my recent hospital stay wasn’t a full admission and why Medicare won’t cover all the charges? I was in a room there over three days, but they said I didn’t meet inpatient criteria. What is going on?
A. Having an inpatient admission to a hospital versus being placed on observation services, or status, has been a confusing situation for a while now. Observation services are short-term outpatient services received when you are in the hospital for monitoring purposes and/or to determine whether you should be admitted as an inpatient. It is important to understand that if you are receiving observation services (sometimes referred to as observation status), you have not been formally admitted to the hospital as an inpatient, even if you are given a room or stay overnight.
Outpatients can stay for multiple days and nights in hospital beds and receive medical and nursing care, diagnostic tests, treatments, medications, and food, just as inpatients do. A hospital that classifies a Medicare beneficiary under observation status bills Medicare Part B (outpatient care) for services rendered instead of Part A (inpatient care). Depending on how long they stay in the hospital and what services they receive, these patients might end up with higher cost sharing than they would have under Part A. In addition, Medicare only covers a post-hospitalization stay in a Skilled Nursing Facility (SNF) if someone has been a hospital inpatient for three days.
It is important to understand the specific guidelines that hospitals must follow when classifying a patient’s stay as either observation or inpatient. Observation status involves short-term monitoring to decide whether inpatient admission is necessary. Criteria for observation include anticipation of improvement within 24-48 hours, less severe symptoms, and the need for further diagnostic tests. Inpatient status is assigned for more intensive care and longer stay requirements. These classifications ensure appropriate medical care and accurate billing but can result in some surprises for patients if you’re not well-informed.
If you are under observation services for more than 24 hours, the hospital must notify you that you are an outpatient, not an inpatient. Patients and their family / advocates need to check on the patient’s status in the hospital each day. Hospitals must use the Medicare Outpatient Observation Notice (MOON.) The MOON tells you why you are an outpatient (in a hospital or critical access hospital) getting observation services and how it affects what you pay in the hospital and for care after you leave.
But the MOON doesn’t give instructions on how to appeal patient status; that’s because before this year, such appeals were not allowed under Medicare. However, as of October 2024, the ability to appeal patient status has changed, this according to an article in the Medicare Messenger, Spring 2025 edition, by Brandy Bauer, Joint SMP & SHIP Centers Director. The change is due to a class action lawsuit that resulted in the Centers for Medicare & Medicaid Services (CMS) being ordered to create an appeals process for a select group of beneficiaries.
While individuals initially classified as outpatient or observation status still cannot appeal their status, individuals who were admitted to the hospital as inpatients but later had their stay reclassified as outpatients, under observation status, are allowed to appeal. This federal court decision impacts beneficiaries back to January 1, 2009, up through February 14, 2025. Beneficiaries who wish to file a Retrospective Appeal must meet the following conditions:
- Have had their stay reclassified from inpatient to observation AND
- Have received a notice (either MOON or Medicare Summary Notice) that their hospital stay was not covered by Part A AND
- EITHER were not enrolled in Part B at the time of hospitalization OR
- Stayed in the hospital for at least three days (but not as an inpatient) and were admitted to a SNF/nursing home within 30 days of hospital discharge.
Documentation will be required to support the initial inpatient status. Successful appellants may be able to get a refund for payment of out-of-pocket SNF services, however, retrospective appeals only apply to payment of services rendered; if a beneficiary had their patient status reclassified and chose not to seek post-hospital care in a SNF because it wasn’t covered under Part A, that would not qualify for an appeal.
Prospective Appeals started February 14, 2025, and are intended for people in the hospital who wish to appeal their reclassification from inpatient to observation status. Similar to retrospective appeals, beneficiaries filing prospective appeals also have to meet the same requirements regarding reclassification of inpatient status to outpatient and either:
- Spend at least three consecutive days in the hospital (not counting the day of discharge) but be an inpatient for fewer than three days OR
- Are not enrolled in Part B at the time of hospitalization.
CMS has created a new notice (different from the MOON) for hospitals to give patients whose inpatient stay is being reclassified. The Medicare Change of Status Notice (MCSN) includes appeals rights and instructions. Two important caveats for the new appeals are that both retrospective and prospective appeals are only available to beneficiaries enrolled in Original Medicare during their hospitalization, not to those in Medicare Advantage plans. Additionally, there is a deadline for the retrospective appeals which is January 2, 2026. Prospective appeals will be permanent.
For more information, contact the State Health Insurance Assistance Program (SHIP — formerly MMAP) at 1-800-803-7174.