"Held for observation" is not the same as "admitted." Many times a patient is held and treated at the hospital—in a bed, in a room for as much as 48 hours—but not formally admitted to the hospital. This is known as being "held for observation." Hospitals have increased the practice of holding patients on observation status over the last several years.
One problem with being held on observation is that it doesn't trigger coverage by Medicare Part A. Medicare Part A hospital insurance covers patients only if they are actually admitted to the hospital as an inpatient. Instead, Medicare Part B medical insurance covers the care provided by the hospital and the doctors. The problem is that the copayments and deductibles a patient has to pay under Medicare Part B are generally higher than under Part A.
More importantly, being held for observation—rather than being actually admitted to the hospital—spells trouble for a patient who needs follow-up skilled nursing facility or rehabilitation care, which is quite common after hospital treatment. Medicare will cover a stay in a skilled nursing facility only after a patient has spent at least three consecutive days (not counting the day of discharge) in the hospital as a formally admitted inpatient. So being held under observation at a hospital can mean a patient must pay the entire cost of the skilled nursing or rehab facility care out of the patient's pocket.
Several years ago, Medicare adopted a "Two Midnight" rule for determining a patient's status. Doctors and hospitals usually use the Two Midnight guideline in determining whether a patient is to be formally admitted as an inpatient. This refers to an expectation by the treating physician that the patient will need to remain in the hospital for at least two consecutive overnights ("two midnights"). However, this is only a guideline, not a hard-and-fast rule, and a doctor can admit a patient as an inpatient even if the doctor is not certain the patient will need to remain past two midnights, if doctor believes that an inpatient admission is medically required. (Medicare, however, reserves the right to challenge the reasonableness of that decision.)
Hospitals are supposed to provide a written notice to all patients who are at the hospital "under observation" for at least 24 hours, explaining whether the patient's stay at the hospital is officially an inpatient stay or an outpatient stay. Congress passed the NOTICE Act in 2016 to require hospitals to explain to its patients what type of care they have received and how that treatment affects their eligibility for skilled nursing facility care/nursing home coverage. Congress recognized the need for this notification as patients were sometimes surprised to learn that they were outpatients even though they "received treatment overnight in a hospital bed."
If the stay is at least partly as an inpatient, the notice should indicate whether the inpatient status was for the three days (not counting the day of discharge) required for Medicare Part A to cover a following stay in a skilled nursing facility. If the stay was strictly an outpatient stay, the notice must also explain why the patient was not admitted as an inpatient.
The required notice should also explain that, to be covered under Medicare for a stay in a skilled nursing facility, a patient must have first been admitted to the hospital and have spent three days as an inpatient (not counting the day of discharge), before going to a nursing home. (Note that this rule may not apply to those who have a Medicare Advantage plan; whether a nursing home stay is covered in this situation is up to the HMO or PPO that operates the Medicare Advantage plan.)
In addition, when a patient goes to a skilled nursing facility following a hospital stay that included a period of under observation outpatient status, the skilled nursing facility must give the patient a Skilled Nursing Facility Advance Beneficiary Notice of Non-Coverage (SNFABN), warning that care may not be covered by Medicare Part A.
While the NOTICE Act makes these notices mandatory, it does not provide any form of relief or appeal if a hospital or other medical facility fails to give a patient the required notice about their eligibility for nursing home care.
If you or a loved one are taken to the hospital and treated there for more than 24 hours, ask your doctor to have you or the loved one formally admitted to the hospital, rather than merely being held for observation, so that Medicare Part A coverage will be available to cover the stay and any following skilled nursing or rehabilitation facility inpatient care.