From the Hook Law Center:
Do you know the difference between being admitted to a hospital as an INPATIENT or as someone UNDER OBSERVATION? If you’re eligible for Medicare, the difference can be very costly. Consider the scenario of Laraine Sickels, a retired teacher from Whidbey Island, Washington. At 71 she went to the hospital because she had fallen at a friend’s house. It was determined that she had 3 breaks to her pelvis. She spent 5 days in the hospital, but during that time she was only considered “under observation.” Unaware of this, when it came time to be discharged, she was released to a skilled nursing facility. That’s where the problem started. She got good care there, but because she had not been spent 3 days in a hospital as an inpatient, her 10-day stay at the skilled nursing facility was hers to pay. Medicare covers the first 20 days in a skilled nursing facility completely as long as you’ve been in the hospital at least 3 days classified as “inpatient”. In addition, that same patient who was classified as “inpatient” will pay for days 21-100 at the skilled nursing facility at the rate of $144.50, a fraction of the true cost. (Amanda Gengler, “This could hurt–a lot,” Money Magazine, August 2012, p. 72-3)
So what’s happening? Well, Medicare is attempting to trim expenses. One way they’ve decided to do this is that, for certain cases, the patient who may have only one ailment gets classified as “under observation” while tests are run. This classification allows them to reimburse hospitals at a lower rate. “In 2009, the most recent data available, observation stays topped 1 million, up 25% from 2007, according to a study published by researchers at Brown University.” (Gengler, p. 72) From their point of view, your care is the same. Medicare just winds up paying a lot less.
What can you do? Read the rest at the link.