Inpatient vs. observation status: what's the difference?
Short answer
Inpatient status means the patient is formally admitted on a physician's order and the stay is billed under Medicare Part A. Observation is an outpatient service, billed under Part B, used to decide whether a patient needs admission. The patient may be in the same bed with the same care, but status changes the hospital's payment, the patient's costs and whether the stay counts toward Medicare skilled nursing facility coverage.
Last reviewed by board-certified physician advisors
What changes for the patient
- Costs: observation is billed under Part B, so copays apply to individual services, and self-administered drugs may not be covered
- Skilled nursing coverage: in traditional Medicare, observation days don't count toward the 3-day inpatient stay needed for skilled nursing facility coverage
- Notices: patients must be told their status in writing (see below)
Required notices
- MOON (Medicare Outpatient Observation Notice): required for Medicare patients who receive observation services for more than 24 hours, delivered no later than 36 hours after observation begins
- IM (Important Message from Medicare): given to Medicare inpatients within 2 days of admission and again no more than 2 days before discharge, explaining their discharge appeal rights
How long observation should last
Medicare guidance says that in most cases the decision to admit or discharge can be made in less than 48 hours, usually in less than 24. Long observation stays are a common sign that status decisions need a physician advisor's review.
Changing status
- Outpatient to inpatient: a new inpatient order is written. Inpatient status starts at that order and can't be backdated.
- Inpatient to outpatient (Condition Code 44): allowed only before discharge, when a physician member of the utilization review committee and the attending physician agree, it's documented and the patient is informed.
Key terms
Common questions
Can a patient be in observation and inpatient in the same bed?
Yes. Status is about how the stay is billed and covered, not where the patient is. Same unit, same bed and same nurses can be either status.
Do patients have to be told they're in observation?
Yes. Medicare patients in observation for more than 24 hours must receive the MOON notice, no later than 36 hours after observation begins.
Can status be changed after the patient leaves?
Condition Code 44 is no longer available once the patient is discharged, and inpatient status can't be applied retroactively. That's why status should be reviewed while the patient is still in the hospital.
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