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"Inpatient", "Outpatient", "Observation": the 411

By Martine G. Brousse (not AI!)

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"The Medical Bill Whisperer"

Patient Advocate, Certified Mediator



May 21, 2024


There are 3 basic types of status a patient is assigned when medical services are rendered in a “facility”, meaning in an actual, physical building other than your home.


A.   What is a “facility”


For this blog, a “facility” is considered as a setting where procedures are performed

that require specialized and specific equipment, skilled staff, beds, supplies, for an amount of time either less than or greater than 24 hrs.


Some examples are: hospitals, ER departments, clinics, surgicenters, rehab centers, Skilled Nursing Facilities, residential treatment centers, nursing homes, imaging centers, dialysis centers, infusion centers etc.


B.    Status Determination


The status ultimately assigned to a patient (“inpatient”, “outpatient” or “observation”) will be determined by:

·      The level of care provided

·      The scope of services rendered

·      The seriousness of the medical event/circumstances

·      The time spent at that facility

·      The medical decision from an ER Dr, supervising or referring physician

·      The insurance’s guidelines (especially Medicare)


These 3 types of status apply to medical, behavioral and mental health events.

It is important to know which status a patient is kept under, as administrative and financial consequences will be affected by it.


C.    The 3 types:



·      This status usually means that an intervention, treatment, range of medical services required at least 24 Hrs, or an overnight stay of at least 1 night

·      The patient was formally “admitted” to the facility by a physician

·      A patient can become “inpatient” following an ER visit, or for a pre-scheduled occurrence (procedure, treatment, rehab etc)

·      A physician has determined that a patient is too sick to be discharged home or transferred to a lower care facility, and must remain at that hospital until stable or recovered

·      An inpatient stay may have been prescribed by a physician for behavioral or substance abuse treatment, for physical rehabilitation after an accident or adverse event (stroke), for skilled nursing care after leaving a hospital

·      Procedures or treatments that are more complex, with a high risk for complications, that require post-operative monitoring or high clinical level of post-care are usually "inpatient"

·      Patient with life-threatening conditions or post-trauma are usually "inpatient" until the crisis is under control



·      This status if for interventions, treatments, medical services that require less than 24 hours nor the highest level of care

·      Services rendered in an office, clinic, lab, infusion or imaging center, dialysis center, surgicenter are usually are considered “outpatient” by default

·      ER Depts, hospitals, psych or rehab facilities can offer outpatient services as well, for minor or short-term services

·      The clinical trend is for more and more surgeries to be considered “outpatient”

·      However, an outpatient procedure may lead to an admission and inpatient status due to complications



·      This is an “in-between” status, when a patient is neither too sick to be admitted, nor stable enough to be transferred or discharged home.

·      If more time is needed for the physician to determine a final diagnosis or whether you should be admitted or discharged, you are considered in “observation”

·      There are advantages:

o   More efficient care delivery processes

o   Inpatient beds and services can be used for those who truly need them

o   Better and lesser use of services

o   Rush for immediate aggressive (costly) measures can be avoided

o   Lower cost to insurers and patients

·      This status affects mostly Original Medicare and Medicare Advantage patients




1.     Commercial patients (non Medicare)

·      Inpatient services usually require a pre-authorization, or authorization once admitted

·      Outpatient/observation services often do not require an authorization

·      All services have their own level of reimbursement and coverage

·      There may be special requirements (such as pre-authorizations) or even limits on services that last a long time or are expensive, even if outpatient (chemotherapy, MRIs, psych therapy etc)


2. Original Medicare patients

·      Services do not require pre-authorization or notification, but will be paid by different “parts”: part A covers inpatient services, Part B covers Outpatient and Observation services

·      “Observation” status can last up to 3 days, even if the patient is kept at a hospital the whole time, but the hospital must give you written notice on day 1 as the cost to the patient can be higher under part B

·      Medicare limits the number of days it covers, and adjusts the cost to the patient based on the number of inpatient days

·      Skilled Nursing inpatient days are limited as well, and require a 3-day Inpatient stay at a hospital before being covered. A 3-day Observation stay does not qualify as a reason for Medicare to cover SNF services.


3.   Medicare Advantage patients

·      Same rules, coverage guidelines and payment limits apply

·      In addition, pre-authorizations are usually needed for many inpatient and outpatient services

·      Policy will determine final share of cost


E.    Some Tips


1.     Stay informed!

·      Always ask what your status is, on a daily basis, as it can change, while in a hospital or other facility

·      Getting it in writing, at least any change, is best

·      If pre-scheduled, get confirmation of the status ahead of time, and inform your insurance

·      Make sure the ordering/referring physician and/or the facility have obtained any necessary authorization to avoid insurance denials down the line.


2.     Double Check!

·      Make sure the final status listed in your medical records matches what your Dr told you and what the insurance is being billed for, especially if your status was changed during your stay.


·      Because of the federal law No Balance Bill Act, emergency conditions, including an inpatient admission, must be covered without a need for an authorization or other requirements.

·      This affects commercial plans, and may force your insurance to pay more, and save you some $ while you recover your health.


It is important to consult your policy, and/or Medicare rules to make sure you are given the correct paperwork, or don't sign a form that may end up costing you down the line.

Medicare patients especially should be extra cautious when told they are under "observation", as this status could affect not only their hospital costs, but also those of a Skilled Nursing Facility should they need to be transferred there before going home.


Martine Brousse was a long-time Billing Manager for Physicians before switching to the side of patients in 2013. The move has allowed her to apply her deep expertise and vast experience of the intricacies of resolving all types of medical bill and claim payment issues in ways that directly and positively impact her clientsʻ finances.


@martine brousse 2024 @ the medical bill whisperer 2024

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