Some seniors are shocked when they find out that staying overnight in a hospital doesn't always mean they were actually admitted as an inpatient.

Instead, they received observation care, considered by Medicare to be an outpatient service. The observation designation means they can have higher out-of-pocket expenses and fewer Medicare benefits. It also affects what your Medicare Advantage or Medicare Supplement Plan will pay for.

Health care experts say the situation is far from ideal for both hospitals and patients. Hospitals are feeling increased pressure from Medicare to classify patients the “right way” or risk losing reimbursements. In turn, patients face higher bills for services they receive in the hospital and the possibility of not qualifying for a Medicare-covered stay at a skilled nursing facility afterwards.

Medicare inpatients typically only pay a one-time deductible. Under observation status, however, Medicare beneficiaries pay a deductible, plus part of the cost of each individual hospital service provided, with no limit on what they may owe, plus the cost of non-covered drugs.

Medicare will cover 100 percent of the first 20 days for approved skilled nursing facility care, but only for those with a minimum of three full inpatient days in the hospital.

The only way to know for sure if you are considered inpatient or observation status is to ask. As of August 2016, Medicare beneficiaries in the hospital for more than 24 hours must be informed in writing of their status within 36 hours of when they begin receiving medical services as an outpatient. The written notice must clearly explain:

• That the individual is not an inpatient.

• The reasons for the person's observation status.

• The implications in terms of increased financial responsibility and lack of eligibility for coverage in a skilled nursing facility after discharge.

The patient or their representative must sign the notice to acknowledge their understanding.

To read or download the Centers for Medicare and Medicaid Services booklet concerning observation status, visit www.medicare.gov/Pubs/pdf/11435.pdf.

Lew Barr is an independent insurance broker specializing in Medicare products for seniors and can be contacted at 773-0220 or [email protected].