The difference in status can be very important for seniors because it directly impacts out-of-pocket expenses. Moreover, this status has sometimes been used as a substitute for admission in recent years — raising troubling quality-of-care issues.

“Rapid Growth in Medicare Hospital Observation Services: What’s Going On?” found an alarming spike (of more than 100 percent) in Medicare claims for observation status over a nine-year period beginning in 2001. The duration of a stay in observation has also increased significantly. Many Medicare patients are not aware of the extra expenses they face if they stay in a hospital for “observation.”

Medicare also mandates a three-day inpatient stay before care is covered in a skilled nursing facility. If a patient remains under observation for three nights, that stay does not meet Medicare’s requirements, and coverage will not be extended to it. The patient will be billed for the costs.

AARP’s report suggests, among other things, that Medicare qualify a three-day observation stay for coverage. The issue has garnered attention in the Senate and the House, and legislation has now been introduced to that end. The AARP fully supports the Improving Access to Medicare Coverage Act of 2013 (H.R. 1179/S. 569).