When Is a Hospital Stay Not a Hospital Stay? The Problem of “Observation Status”

One condition for Medicare payment for skilled nursing facility care is that a beneficiary be a hospital inpatient for at least three days before admission to the skilled nursing facility.  A primary concern among advocates has been that time in observation status and in the emergency room was not counted by the Medicare program as part of an inpatient hospital stay, even when that time was followed by a beneficiary's formal admission to the hospital as an inpatient.  Recently, however, a new and greater concern has arisen.  Beneficiaries throughout the country report that their entire stays in a hospital, including stays as long as 14 days, are classified by the hospital as "outpatient observation".

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