Look here. No one wants to go to the hospital in the first place. They also don’t want to pay more for hospital care than they have to. The good news is that you may be able to appeal your case to Medicare if you were unable to go to a skilled nursing facility because you were placed under observation.

Inpatient vs. Observation

Medicare will cover your hospital stay. What part of Medicare pays (Part A or Part B) and how much you pay depends on the orders on your medical chart. When you come to the hospital, your doctor will admit you as an inpatient or place you under observation/outpatient status. Their decision is based on how sick you are and how likely they think your care will cross two medically necessary midnights.

Orders	Inpatient	Observation or Outpatient
Medicare Coverage	Part A	Part B
What You’ll Pay	A flat rate that covers the first 60 days ($1,600 in 2023) Plus 20% for physician fees	20% for each service you receive, including everything from room and board to physician fees (no single service can cost you more than $1,600 in 2023)

Skilled Nursing Facility Care

Some people need extra care when they leave the hospital. This could require a short stay in a rehab facility or a nursing home to recover. With this in mind, the orders on your medical chart are extremely important. That’s because Medicare Part A covers skilled nursing facility care but Part B does not.

For Medicare Part A to cover your stay in a skilled nursing facility, you need inpatient orders on your medical record. The catch is that you need to be in the hospital for three consecutive days as an inpatient to get that coverage. Even tricker, time spent in the emergency room doesn’t count. Any days you are under observation don’t count. The day you leave the hospital also doesn’t count.

The COVID Pandemic and the Public Health Emergency (PHE)
The Public Health Emergency put a hold on the 3-day skilled nursing facility rule from March 13, 2020 through May 11, 2023. Now that the PHE has ended, the 3-day SNF rule is back in play.

Changing Orders

Your doctor can change your orders while you’re in the hospital. You could go from observation/outpatient to inpatient status and vice versa at any time during your stay. This may be based on how you are doing clinically. It could also be based on recommendations made by the utilization review team at the hospital.

Medicare does not allow the hospital to retroactively change your orders. Once a day has passed, those orders are locked in. This also means your orders cannot be changed after you leave the hospital, making appeals tricky in some cases.

The Medicare Outpatient Observation Notice (MOON)
The hospital will present you with a Medicare Outpatient Observation Notice within 36 hours of your observation or outpatient order. The notice will explain why you have the orders you do, how much you will pay in cost-sharing under Part B, and reminds you that Part B does not cover skilled nursing facility stays, even if you need one.

Your Right to an Appeal

Because you cannot retroactively change orders from observation/outpatient to inpatient status, it can get tricky to get coverage for skilling nursing facility care after the fact.

Interestingly, a class action suit was filed in 2011 by the Centers for Medicare Advocacy and Justice in Aging. It was placed on behalf of Medicare beneficiaries denied skilled nursing coverage because they had observation/outpatient orders during their hospital stay. The case went back and forth in the courts over several years. In January 2022, a decision was made in favor of the plaintiffs that allowed them to appeal their cases but only under the following conditions:

• Hospitalization occurred on or after January 1, 2009.
• The beneficiary had Medicare Part A at the time of the hospital stay.
• Either the beneficiary did NOT have Medicare Part B -or- they were hospitalized for 3 or more days with fewer than 3 days as an inpatient.
• The Medicare beneficiary initially had inpatient orders but those orders were changed to observation/outpatient orders during the hospital stay (i.e., the final order on the chart was for observation/outpatient services).
• The beneficiary needed skilled nursing facility care.

If this situation applies to you, you have the opportunity to an appeal for Part A skilled nursing facility coverage. Exercise that right.

H.R.876 – 114th Congress (2015-2016): Notice of Observation Treatment and Implication for Care Eligibility Act. (2015). Congress.gov. https://www.congress.gov/bill/114th-congress/house-bill/876/text

Issue Brief – March 2022 – Litigation Update Including Observation Status, Off label Drugs & Other Issues – Center for Medicare Advocacy. (2022). Center for Medicare Advocacy. https://medicareadvocacy.org/issue-brief-march-2022-litigation-update-including-observation-status-off-label-drugs-other-issues/

Medicare Outpatient Observation Notice (MOON). (2016). Centers for Medicare & Medicaid Services. https://www.cms.gov/newsroom/fact-sheets/medicare-outpatient-observation-notice-moon

Skilled Nursing Facility 3-Day Rule Billing. (2023). Centers for Medicare & Medicaid Services. https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/SNF3DayRule-MLN9730256.pdf