Observation services are short-term outpatient services received when you are in the hospital for monitoring purposes and/or to determine whether you should be admitted as an inpatient. It is important to know that if you are receiving observation services (sometimes referred to as under observation status), you have not been formally admitted to the hospital as an inpatient, even if you are given a room or stay overnight.

You can always ask hospital staff about your status. The hospital must also provide you with a notice if you receive observation services for more than 24 hours. This is called the Medicare Outpatient Observation Notice (MOON). The MOON notifies you that you are receiving observation services and explains why you are an outpatient. Your doctor should explain this notice to you in person.

Because observation services often involve an overnight stay in the hospital, they may look no different than inpatient services. However, it is very important to know whether you are an inpatient or an outpatient because this determination affects how Medicare pays for your care.

  • Part A pays for care received at the hospital by an inpatient.
  • Part B pays for care received at the hospital by an outpatient under observation status.

You typically pay more when Part B covers your hospital care. For example:

  • You may have multiple copayments. While each individual copay must be lower than the Part A deductible ($1,340 in 2018), your total copay costs may be higher than the Part A deductible.
  • Part B does not cover medications you routinely take. Instead, you will need to use your Part D plan for prescription drug coverage. If the hospital’s pharmacy is out of your plan’s network, you may pay more for your drugs.
  • Medicare will not cover skilled nursing facility (SNF) care if you have not had a three-day inpatient stay. This means that if you have been under observation status and your provider suggests you receive SNF care, you may have to pay out of pocket for all SNF costs.