When you go to the hospital, there’s usually not a lot of time to plan ahead. Worse, the hospital can charge you more than you expect. Medicare does not cover every hospital stay the same way.

Key Definitions

Inpatient: You might think being an INPATIENT means that you were IN the hospital or that you stayed overnight in the hospital. That is not always true. To be an inpatient, your doctor or healthcare provider needs to put an inpatient order on your medical chart. To do so, they must consider your hospital stay to be medically necessary. That means they believe you urgently need hospital-level care and they do not think you could safely get your care anywhere else.

Under Observation: When you are not an inpatient, your doctor or healthcare provider could put you “under observation”. This does not mean you don’t need care. No one goes to the emergency room for fun! Instead, it suggests they see your situation as manageable or quickly stabilized and that you could get the care you need without staying too long in the hospital.

Timing is Everything

Your doctor or healthcare provider has the medical training and expertise to know when hospital care is appropriate. However, the Centers for Medicare & Medicaid Services complicated things when they introduced the 2-Midnight Rule in October 2013.

Now, it’s not enough for your care to be medically necessary. You also have to meet a time requirement. Instead of using the actual number of hours you got care, Medicare uses midnights to decide when inpatient status is appropriate. If your doctor or healthcare provider sees you as sick enough to need hospital-level care that is “expected” to cross at least two midnights, only then can they place an inpatient order on your chart.

Pay attention to the word “expected”. It means there may be some wiggle room if your hospitalization does not actually cross two midnights. However, this can only be supported if your healthcare provider documents their concerns clearly in the medical record, enough to convince Medicare to agree with the need for an inpatient stay.

The Medicare Clock:
The clock does not start ticking when you arrive at the hospital. It doesn’t start when you check in and not even when your vital signs are taken. It starts when your first orders are placed on your medical chart or your first tests are done, whichever comes first.

The 2-Midnight Rule in Action

Consider two people who have the same exact symptoms. They receive the same exact care and the healthcare provider “expects” they will be stable for discharged 36 hours later.

Patient #1: Care starts at 11:59pm on January 1. The patient will cross their first midnight of care after 1 minute.

Patient #2: Care starts at 12:01am on January 2. The patient will not cross that first midnight for nearly 24 hours.

After 36 hours, the first person would cross two midnights but the latter would only cross one. The doctor could put an inpatient order on the first chart but could put the second patient under observation.

What Part of Medicare Pays?

	Part A*	Part B**
You have an inpatient order on your medical chart at the time you are discharged from the hospital.	Medicare-approved hospital services	Your healthcare provider fees
Your have an observation or outpatient order on your medical chart at the time you are discharged from the hospital.	None	Medicare-approved services and healthcare provider fees
You had an inpatient order on your medical chart but it was changed to an observation or outpatient order before you were discharged.	None	Medicare-approved services and healthcare provider fees

Medicare is really all or none when it comes to hospital stays. With the exception of your doctor fees (Part B always covers those), either Part A or Part B covers your stay. It depends on the order you have on your chart right before you leave the hospital.

*You pay a Part A deductible (a flat rate of $1,600 in 2023) that covers your hospital stay for the first 60 days. After that, you pay a fixed daily rate depending how long you are in the hospital. Part B would pay 80% of your physician fees and you pay the rest.

**Part B pays 80% toward each service (you pay 20%) but you will not pay more than the Part A deductible rate for any one service. This is also the case for bundled services where multiple items are billed together in one lump sum. Put another way, no one line item on your hospital bill can cost you more than $1,600 out of pocket in 2023.

The Cost Difference

Let’s use an example of someone going to the emergency room because they had chest pain. It is important to find out if they had a heart attack. A basic evaluation will include a number of tests including blood work, a chest x-ray, and an electrocardiogram (EKG). Depending on what they find, it could also include a cardiology consultation, an echocardiogram, a cardiac stress test, and maybe even cardiac catheterization or surgery. They will also likely receive IV medications, not to mention nursing care, use of the hospital bed, and food.

The average cost of an ER visit in 2019 was $1,082. This estimate by the Medical Expenditure Panel Survey includes how much insurance and patients paid toward that care, not necessarily how much the hospital charged for it. While that number is less than the Part A deductible, it is just an average and depends on your individual situation. Also, this number assumes you got checked out in the ED and then went home. Anyone who stays overnight in the hospital is going to pay more. It’s easy to see how your out-of-pocket costs can quickly exceed the Part A deductible.

In the above case, assume the person was found to have a heart attack. According to the Agency for Healthcare Research and Quality, their stay would be 5.3 days on average and cost the patient approximately $21,500 out of pocket. How is the Part A deductible looking now?

Medigap Coverage

You can keep your out-of-pocket costs down by signing up for a Medigap plan. Depending on the plan you choose, it could help pay toward your hospital care. Find a plan that pays your Part A deductible (hospital days 1-60), Part A coinsurance (hospital days 61+), Part B coinsurance (physician fees), and SNF coinsurance (SNF days 21-100).

Reminder:
You cannot sign up for a Medigap plan if you have a Medicare Advantage plan.

Take Home Message

Not all hospital stays are created equal. Inpatient and observation orders make all the difference. Your doctor knows how sick you are and can tailor your care accordingly. However, they do not have control over the Medicare regulations that bind them to a clock. If they make you an inpatient and Medicare disagrees, the hospital won’t get paid. Unfortunately, this has led to a significant increase in observation hospital stays (as opposed to inpatient stays) over the years and that could literally cost you.

 

Clarifying Medical Review of Hospital Claims for Part A Payment. (2017). CMS.gov. https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM10080.pdf

Emergency Room – Typical Average Cost of Hospital ED Visit – Consumer Health Ratings. (2022). Consumer Health Ratings. https://consumerhealthratings.com/healthcare_category/emergency-room-typical-average-cost-of-hospital-ed-visit/

The Financial Impact of CMS’ Two-midnight Rule. (2020). American Academy of Orthopedic Surgeons. https://www.aaos.org/aaosnow/2020/aaos-now-special-edition/practice-management/251_practice_management/

HCUP Projections Cardiovascular/Cerebrovascular Conditions and Procedures 2001 to 2012. (2012). Agency for Healthcare Research and Quality. https://www.hcup-us.ahrq.gov/reports/projections/2012-02.pdf

Medicare Two-Midnight Rule Accelerated Shift To Observation Stays. (2021). Health Affairs. https://www.healthaffairs.org/doi/10.1377/hlthaff.2021.00094