What is Hospital “Outpatient” Observation Status?


What you should know and what you should do to avoid extra fees because of “Outpatient Observation” status.


Outpatient observation status is a hospital billing classification and a technique that hospitals use to prevent readmission. One of the reasons why this status is so important is that patients must be classified as inpatients for 3 days in the hospital in order for Medicare to pay for subsequent nursing home care. If you are in a situation where these factors can affect you, it is important for you to understand that observation status may be called “outpatient,” but it has nothing to do with where a patient receives care or the kind of care received. In short, “outpatient observation status” is a billing code.  Hospitals use it to protect from overzealous auditors and medicare readmission penalties.  

Observation status can be devastating. It can result in thousands of dollars in hospital bills, and thousands more in nursing home bills after a hospital stay. It saddles patients with increased out-of-pocket expenses, that they might not be aware of, until they receive a bill.  The use of “outpatient observation status” can be dangerous because many patients can’t afford their care if Medicare won’t pay. If post-hospital care in a nursing home won’t be covered by Medicare, many people forego that care altogether, rather than face the enormous bills. The problem is growing: the number of patients cared for under observation status doubled from 2006 to 2014. In 2012 an average hospital stay in the U.S. cost $10,400, and the median monthly cost for a nursing home in the U.S. was almost $8,000.


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What YOU Can Do


There are a few practical steps that you can take to make sure that you don’t get saddled with extra bills from this status:

  • Be educated about the meaning and intricacies of “outpatient observation status”.
  • Communication and understanding at the beginning of a hospital stay is very helpful in stopping observation status before it starts.
  • Ask the hospital doctor to admit the individual as an “inpatient”, and ask the patient’s regular physician to contact the hospital doctor to support this request.
  • If the patient’s nursing home coverage is denied, make sure that you file an appeal.
  • If there is no notice about “outpatient observation status,” file a complaint with the patient’s state health department.

Lastly, consider getting yourself an elder advocate. Advocates have much more of an understanding of the law and the ways that hospitals employ this tactic.  

My Elder provides elder advocacy services to families. Talk to us about long-term planning, finding the right home for your loved ones, preventing crisis and abuse, and ensuring they receive the best care possible.