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A Project of The Annenberg Public Policy Center

Medicare Under Observation

Q: Is it true that, under the Affordable Care Act, “Medicare will not pay anything” for patients receiving only “observation” care in hospitals?
A: No. Medicare will pay a significant portion of observation care costs after copayments and deductibles are met. Nothing has changed as a result of the ACA.


Is this chain letter true?


Letter from a senior gentleman in Mesa, Arizona:

Dear Family, Friends, Neighbors and former Classmates,

I just found myself in the middle of a medical situation that made it very clear that “the affordable care act” is neither affordable, nor do they care.

I’ll go back about seven years ago to a fairly radical prostate surgery that I underwent. The Urologist (a personal friend) who performed the surgery was very concerned that it was cancer, though I wasn’t told this until the lab report revealed it was benign. Since that procedure, I have experienced numerous urinary tract infections, UTI’s. Since I had never had a “UTI” prior to the prostate surgery, I assume that it is one of the side effects from surgery, an assumption since confirmed by my Family Doctor.

The weekend of March 8-9, I was experiencing all the symptoms of another bout of UTI. By Monday afternoon the infection had hit with full force. Knowing that all I needed was an antibiotic, I went to an Urgent Care Center in Mesa, AZ., to provide a specimen, a requirement for getting the prescription. After waiting 45 min. to see the Doctor, I started getting very nauseous and light headed.

I went to the Receptionist to ask where the bathroom was as I felt that I was going to throw up. I was told that I would have to wait for the Doctor because I would need to leave a specimen and they didn’t want me in the bathroom without first seeing him.

That was when the lights went out, my next awareness was that of finding myself on the floor (in the waiting room) having violent dry heaves, and very confused. At this point, I tried to stand up but couldn’t make it, and they made it very clear they weren’t going to let me get up until the ambulance got there. By the way, when you’re waiting to see the Doctor and you pass out, you get very prompt attention.

Now, “the rest of the story”, and the reason for sending this to so many of you.

I was taken to the nearest hospital, to emergency. Once there, I was transported to an emergency examination room. Once I had removed my clothes and donned one of those lovely hospital gowns, I finally got to see a Doctor. I asked “what is going on” I’m just having a UTI, just get me the proper medication and let me go home. He told me that my symptoms presented the possibility of sepsis, a potentially deadly migration of toxins, and that they needed to run several tests to determine how far the infection had migrated.

For the next 3 hours I was subjected to several tests, blood draws, EKG’s, and demands for specimens. At about 7:30 the nurse came back to my room to inform me that one of the tests takes 1- 2 days to complete, I asked if they (the results)could be emailed, at which point she informed me that I wouldn’t need them emailed because I wasn’t going anywhere. I started arguing with her but was told, “if you don’t start behaving, I’ll start taking your temperature rectally, at which point I became a perfect gentleman. I did tell her I wanted to see the doctor because I had no intention of staying overnight.

Now, this is what I want each of you to understand, please read these next sentences carefully.The doctor finally came in to inform me that he was going to admit me. I said, “are you admitting me for treatment or for observation?” He told me that I would be admitted for observation. I said Doctor, correct me if I’m wrong, but if you admit me for observation my Medicare will not pay anything, this due to the affordable care act , he said that’s right, it won’t. I then grabbed for my bag of clothing and said, then I’m going home. He said you’re really too sick to be going home, but I understand your position, this health program is going to hit seniors especially hard.

The doctor then left the room and I started getting dressed, I was just getting ready to put my shoes on when another doctor (the closer) came into the room, he saw me dressed and said, “where do you think you are going?” I simply said “I’m going home, to which he replied, quite vociferously, no you aren’t. I said, “Doc, you and I both know that under the “affordable care act” anyone on Medicare who is admitted to a hospital for observation will be responsible for the bill, Medicare won’t pay a cent”. At which point he nodded in affirmation. I said, “You will either admit me for a specific treatment or you won’t admit me.” Realizing he wasn’t going to win this one, he said he would prepare my release papers.

A few minutes later the discharge nurse came to my room to have me sign the necessary papers, relieving them from any responsibility. I told her I wasn’t trying to be obstinate, but I wasn’t going to be burdened with the full (financial) responsibility for my hospital stay.

After making sure the door was closed, she said, “I don’t blame you at all, I would do the same thing.” She went on to say, “You wouldn’t believe the people who elect to leave for the same reasons, people who are deathly sick, people who have to be wheeled out on a gurney.” She further said, “The ‘Affordable Care Act’ is going to be a disaster for seniors. Yet, if you are in this country illegally, and have no coverage, you will be covered in full.”

This is not internet hype folks, this is real, I just experienced it personally. Moving right along, this gets worse.

Today I went to a (required) follow up appointment with my Arizona Family Practitioner. Since my white count was pretty high, the follow up was important. During the visit I shared the experience at emergency, and that I had refused to be admitted. His response was “I don’t blame you at all, I would have done the same thing.” He went on to say that the colonoscopy and other procedures are probably going to be dropped from coverage for those over 70.

I told him that I had heard that the Affordable Care Act would no longer pay for cancer treatment for those 76 and older, is that true? His understanding is that it is true.

The more I hear, and experience the Affordable Care Act, the more I’m beginning to see that we seniors are nothing more than an inconvenience, and the sooner they can get rid of us the better off they’ll be.

November is coming folks, we can have an impact on this debacle by letting everyone in Congress know that their responsibility is to the constituents, not the president and not the lobbyists. We need to let them ALL know that they are in office to serve and to look after the BEST INTERESTS of “we the people”, their employers, and not to become self serving bureaucrats who serve only out of greed. And if they don’t seem to understand this simple logic, we’ll fire them.

On the mend,

REMEMBER: Demand your hospital admission is for TREATMENT and NOT for OBSERVATION!


A letter from “Roger” — a “senior gentleman” and alleged Medicare beneficiary in Mesa, Arizona — has gone viral. In the letter, “Roger” writes about his visit to a hospital emergency room for evaluation. He says that two doctors confirmed that if “admitted” to the hospital for only “observation” services, Medicare “will not pay anything” toward his hospital bill because of the Affordable Care Act.

“I said, ‘Doc, you and I both know that under the ‘Affordable Care Act,’ anyone on Medicare who is admitted to a hospital for observation will be responsible for the bill, Medicare won’t pay a cent.’ At which point he nodded in affirmation,” he wrote.

But that’s false. Medicare will pay a significant portion of the costs for necessary observation services in hospitals. And which services are covered has nothing to do with the federal health care law.

Under Observation

Doctors place hospital patients under observation to determine if they should be formally admitted as inpatients or if they can be discharged without further treatment. In most cases, the decision to admit a patient can be made in under 48 hours, and many times in less than 24 hours, according to the Centers for Medicare & Medicaid Services.

Hospital costs for admitted inpatients are covered under Medicare Part A after the patient pays a deductible ($1,216 for 2014). But observation care is considered an outpatient service, and Part A doesn’t cover such services.

Instead, Medicare Part B helps cover the cost of outpatient services including observation care. The Medicare Benefit Policy Manual on hospital services covered under Part B says: “All hospital observation services, regardless of the duration of the observation care, that are medically reasonable and necessary are covered by Medicare.”

For their part, Part B beneficiaries are expected to pay 20 percent of the Medicare-approved amount for doctors’ services after paying the Part B deductible for the year ($147 in 2014), and generally to make copayments for each individual hospital service received. A Medicare pamphlet on inpatient and outpatient costs notes that the copay “for a single outpatient hospital service can’t be more than the inpatient hospital deductible,” but, in total, the outpatient services could end up costing more than the inpatient hospital deductible. Another Medicare fact sheet notes that the deductible and copays may be covered by a “Medigap” policy or other supplemental health insurance the individual may have.

The bottom line: Those receiving observation care as outpatients could end up paying more out of pocket than those admitted for inpatient services. But it’s wrong to say that Medicare “won’t pay a cent” for observation care. It pays quite a bit.

What May Not Be Covered

To be sure, Medicare doesn’t cover all costs associated with observation care.

Beneficiaries may be required to pay out of pocket for any medications they receive in the hospital under observation care. CMS says patients may file a claim and receive reimbursement if the medication is covered by their Part D prescription drug plan.

Also, Medicare only covers the cost of follow-up care at a skilled nursing facility if someone was a hospital inpatient for at least three nights. So seniors treated in hospitals only under observation could be subject to high out-of-pocket costs if they need rehabilitation at a skilled nursing facility after being discharged from the hospital. In fact, such a scenario was the subject of an NBC “Nightly News” segment in January.

But while the use of observation care in hospitals has increased in recent years, which also has led to increased press coverage of higher than expected costs for some, the situation is not new. And it is not a result of the federal health care law, as “Roger” claims.

Andrea Callow, a policy attorney for the nonpartisan Center for Medicare Advocacy, told us in an email that the long-standing concern about how Medicare bills patients receiving observation care, which her organization has been tracking since at least 2000, has “absolutely nothing to do with the Affordable Care Act.”

— D’Angelo Gore


Callow, Andrea. Center for Medicare Advocacy. Email sent to FactCheck.org. 24 Mar 2014.

Centers for Medicare & Medicaid Services. “Are You a Hospital Inpatient or Outpatient? If You Have Medicare – Ask!” Feb 2011, accessed 9 May 2014.

Centers for Medicare & Medicaid Services. “Medicare Benefit Policy Manual, Chapter 6 – Hospital Services Covered Under Part B.” 21 Mar 2014, accessed 9 May 2014.

Centers for Medicare & Medicaid Services. “Quick Facts About Payment for Outpatient Services for People with Medicare Part B.” Jan 2010, accessed 9 May 2014.

Centers for Medicare & Medicaid Services. “How Medicare Covers Self-Administered Drugs Given in Hospital Outpatient Settings.” Feb 2011, accessed 9 May 2014.

Tergesen, Anne. “Beware Medicare’s ‘Observation’ Status.” Wall Street Journal. 19 Oct 2013.

Miller, Mark. “Hospitalized but ‘under observation’? Seniors, beware.” Reuters. 23 Jan 2014.

Jaffe, Susan. “FAQ: Hospital Observation Care Can Be Poorly Understood And Costly For Medicare Beneficiaries.” Kaiser Health News. 4 Sep 2013.

NBC Nightly News. The Two Words That Cost Medicare Patients Thousands. Video. 9 Jan 2014.

Department of Health and Human Services Office of Inspector General. “Hospitals’ use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries, OEI-02-12-00040.” Memo. 12 May 2014.