Observation Status? Medicare May Not Pay the Nursing Home
Esta guía también está en español.
Key takeaways
- A patient under observation is a hospital outpatient, even after spending the night. Medicare says a person is an inpatient only after a doctor orders admission and the hospital formally admits them.
- Original Medicare generally pays for a skilled nursing facility only after an inpatient stay of at least 3 days in a row, not counting the discharge day, unless a 3-Day Rule Waiver applies. Observation and emergency room time do not count.
- Hospitals must give the MOON (Medicare Outpatient Observation Notice) to Medicare patients, including Medicare Advantage members, who get more than 24 hours of observation, no later than 36 hours after it starts.
- Since February 14, 2025, an Original Medicare patient who was admitted as an inpatient and then changed to observation can ask the BFCC-QIO for a fast appeal, if they have no Part B or were in the hospital 3 or more days but an inpatient for fewer than 3.
- When the 3-day rule is met, the patient's 2026 share under Original Medicare is $0 a day for skilled nursing facility days 1-20 (after the $1,736 Part A deductible, if not already paid for the hospital stay in that benefit period) and $217 a day for days 21-100.
Short answer
Under observation status, a hospital patient is an outpatient, even after a night in a hospital bed. Medicare says observation time does not count toward the 3 inpatient days Original Medicare requires before it pays for a skilled nursing facility (SNF). A patient can spend 3 days in the hospital and still not qualify.
What to do while the patient is still in the hospital:
- Ask about status every day. Medicare.gov says to ask the doctor, a hospital social worker or a patient advocate whether the patient is an inpatient or an outpatient.
- Look for the notices. If observation lasts more than 24 hours, the hospital must give the MOON no later than 36 hours after observation starts (it may be given earlier). If an inpatient was changed to observation, Medicare says to ask for the Medicare Change of Status Notice if it is not given.
- Talk to the doctor or the hospital's utilization or discharge planning staff, as Medicare's fact sheet suggests.
- Admitted, then changed to observation? With Original Medicare, a fast appeal goes to the BFCC-QIO named on the notice. Asking before the patient leaves keeps billing protection in place.
- Free help: 1-800-MEDICARE (1-800-633-4227; TTY 1-877-486-2048), or a SHIP counselor through shiphelp.org.
What is observation status in a hospital?
Observation status means the patient is getting hospital outpatient services while the doctor decides whether to admit them or send them home. It can happen in the emergency department or another part of the hospital.
Medicare.gov says a person becomes an inpatient only when a doctor orders the admission and the hospital formally admits them. Without that order, emergency room and observation care are outpatient care, "even if you spend the night in the hospital." Under the federal "two-midnight" rule (42 CFR § 412.3), an inpatient admission is generally appropriate for Part A payment when the admitting doctor expects the patient to need hospital care that crosses two midnights.
Why does observation status matter for nursing home coverage?
It matters because only inpatient days count toward Medicare's 3-day rule. Federal rules say Original Medicare generally pays for SNF care only after a medically necessary inpatient stay of at least 3 days in a row, not counting the discharge day. The patient generally must enter the SNF within 30 days of leaving the hospital.
Medicare's fact sheet, Medicare Hospital Benefits, gives two examples:
| Hospital stay | Meets the 3-day rule? |
|---|---|
| 1 day of observation, then 2 days as an inpatient | No. That is 3 days in the hospital but only 2 inpatient days. |
| 3 days as an inpatient, discharged on day 4 | Yes, if all other coverage rules are met. |
When the rule is met, the patient's 2026 share under Original Medicare is $0 a day for SNF days 1–20 (after the $1,736 Part A deductible, if not already paid for the hospital stay in that benefit period) and $217 a day for days 21–100. See the Medicare 100-day rule, day by day, or use the Medicare skilled nursing cost calculator. When the rule is not met and no waiver applies, Original Medicare does not pay for the SNF stay.
Medicare says the 3-day stay may not be needed if the doctor takes part in an Accountable Care Organization or another initiative approved for a Skilled Nursing Facility 3-Day Rule Waiver, and suggests asking the doctor or hospital staff.
What is a MOON notice?
The MOON (Medicare Outpatient Observation Notice, form CMS-10611) tells a Medicare patient they are an outpatient getting observation services, not an inpatient. Federal rules (42 CFR § 489.20(y)) say:
- Who gets it: Medicare patients who get observation services for more than 24 hours. CMS says this includes Original Medicare and Medicare Advantage members.
- When: no later than 36 hours after observation starts, or sooner if the patient is transferred, discharged or admitted. It may be given before the 24 hours are up.
- What it says: why the patient is an outpatient, and how that affects costs and later Medicare coverage of SNF care.
- Spoken explanation: the hospital must also explain it out loud. The patient or a representative is asked to sign it; if they refuse, a staff member signs and notes that the notice was presented.
The current MOON form says the stay is billed to Part B instead of Part A, that Part B costs may be lower or higher than the Part A deductible, and that Medicare may not pay for an SNF afterward. Its "Additional Information" box may hold Accountable Care Organization details.
Can you appeal if the hospital changed you from inpatient to observation?
Yes, in Original Medicare, if the patient was formally admitted and then changed to observation. Medicare says these patients can ask for a fast appeal starting February 14, 2025. The right comes from a federal court case, Alexander v. Azar, and a CMS rule (42 CFR §§ 405.1210–405.1212).
Who qualifies. A patient who was formally admitted with an inpatient order, was later changed to outpatient observation, and either:
- does not have Part B, or
- stayed in the hospital 3 or more days in a row but was an inpatient for fewer than 3.
The notice. The hospital must give the Medicare Change of Status Notice (CMS-10868) as soon as possible after the patient qualifies, and no later than 4 hours before release. It lists the phone number of the state's BFCC-QIO (Beneficiary and Family Centered Care Quality Improvement Organization). It can go to a representative, such as someone with health care power of attorney.
| Request | Timing and decision |
|---|---|
| On time (before leaving) | By phone or in writing to the BFCC-QIO before release. Decision within 1 calendar day after the QIO gets all the information; Medicare.gov says about 2 days after filing. |
| Late (after leaving) | Allowed at any time. Decision within 2 calendar days after the QIO gets all information. No billing protection. |
| Reconsideration | By noon of the next calendar day after the decision. Decision within 2 calendar days after the QIO gets the information. Next step: a hearing before an administrative law judge. |
Billing. When the request is on time, the hospital may not bill the patient for the disputed services until the review is finished. The notice warns that a patient who stays past the planned discharge date may have to pay for services during the appeal.
The decision. Medicare.gov says that if the QIO finds the status should not have changed, the patient pays the Part A inpatient deductible and may qualify for a Medicare-covered SNF stay within 30 days of discharge, if other requirements are met. If the QIO agrees with the change, the patient pays Part B costs (or possibly the full outpatient cost without Part B) and does not qualify for a Medicare-covered SNF stay.
Can you appeal an old hospital stay?
Only with good cause for filing late. Medicare.gov says the window for past-stay appeals ended January 2, 2026; later requests are denied unless the person shows good cause. These appeals cover inpatient admissions from January 1, 2009 through February 13, 2025 that the hospital changed to outpatient, when other conditions are met.
Medicare.gov's examples of good cause include a serious illness that kept the person from filing, a death or serious illness in the immediate family, or being given wrong information about how to appeal. Requests go to Q2 Administrators by mail or fax, on form CMS-10885 or in writing. SNF bills paid out of pocket by the patient or family may be included. Medicare.gov says requests filed after May 15, 2026 face significant processing delays.
Does Medicare Advantage use the 3-day rule?
Not always. Medicare.gov says Medicare Advantage plans may waive the 3-day inpatient stay, and that costs and coverage may differ, so check with the plan. Members still get the MOON. But CMS says the new status-change appeals do not apply to Medicare Advantage; members use the plan's appeal rights. See how to appeal a Medicare Advantage skilled nursing denial.
Does observation cost more than being an inpatient?
It can cost less or more. Under observation, Part B pays, and the patient usually owes a copayment for each outpatient hospital service.
| Cost | Under observation (Part B) |
|---|---|
| Hospital services | A copayment for each. In most cases, the copayment for one service can't be more than the $1,736 Part A deductible, but the total for all services can. |
| Doctor services | Generally 20% of the Medicare-approved amount, after the Part B deductible. |
| Daily pills from home | Usually not paid by Part B. A Part D plan may cover some after a claim; if not, the patient pays the hospital's charge. |
| Critical access hospital | The copayment may be higher than the Part A deductible. |
What happens after the hospital?
- How to choose a nursing home before hospital discharge
- What Medicare pays for in a nursing home
- Home health vs. a nursing home after a hospital stay
- Nursing homes near you, with CMS star ratings, staffing and inspection results
- CMS quality data for inpatient rehabilitation facilities (rehab hospitals)