What does “observation status” mean?

“Observation status” means you are in the hospital, but your medical situation does not meet Medicare’s rules for inpatient admission. Your health care provider may need to watch you or do more tests to understand your condition. Even though you are in the hospital and you may stay overnight, Medicare considers you an outpatient.

How will I know if I have observation status?

If you are being admitted in observation status, you should receive a notice from the hospital explaining why you are in observation status and what that will mean for your coverage. These notices are called MOON (Medicare Outpatient Observation Notice) notices. Here is an example of the notice.

Why does observation status matter?

Observation status determines what Medicare will pay for while you are in the hospital and after you leave the hospital.   

• If you are in the hospital under observation status, it means your Medicare Part B is covering your stay in the hospital. You are considered an outpatient. 
• If you are admitted as an inpatient, it means Medicare Part A is covering your stay.

This becomes more important if you are released to a skilled nursing facility (nursing home) for further treatment.

• If you were admitted as an inpatient for a “three-day qualifying stay,” Medicare Part A will cover your stay at the skilled nursing facility. Part A will pay for days 1 - 20 at no cost to you. For days 21 - 100, you will need to pay the daily coinsurance for each day of the benefit period.

• If you were admitted under observation status, Part A will not cover the cost of skilled nursing facility treatment, even if you were in the hospital for more than three days under observation status. Medicare does not count observation time toward the three-day inpatient hospital stay. This means you will have to pay for the skilled nursing facility, which can be very expensive.
• If you think that you should be admitted as an inpatient, it is best to address the issue while you are still in the hospital.

New change in 2025

If you are admitted as an inpatient, but the hospital changes your status to outpatient for observation, you may have new appeal rights to challenge the hospital’s decision while you are still in the hospital. Hospitals must issue you a Medicare Change of Status Notice (MSN) that tells you how to file an expedited (fast) appeal while you are still admitted. Your appeal should be reviewed by a Medicare contractor within one calendar day. If you win your appeal, your skilled nursing facility stay may be covered by Medicare.

You also may be able to appeal for hospital stays where this change in status happened between January 1, 2009 - February 13, 2025. Requests for these appeals must be submitted by January 2, 2026. These appeals are called retrospective appeals. If you win, you may be entitled to refunds of out-of-pocket payments you made to nursing facilities. If you did not have Medicare Part B, you may be able to obtain refunds for out-of-pocket payments you made to the hospital after they changed your status to observation.

For more information on Observation Status appeals, go to the CMS.gov website.

Where can I get more information?

• See the “Medicare & You” handbook on the Medicare website
• Call Medicare at 1-800-MEDICARE (800-633-4227); TTY users call: (877) 486-2048
• Vermont residents:
  • Call the State Health Insurance Assistance Program (SHIP) at 1-800-642-5119 or
  • Contact us at the Office of the Health Care Advocate. Fill out our form or call us at 1-800-917-7787