Medicare will pay for up to 20 days of skilled nursing care only if it follows a three-day qualifying hospital stay. But any day in the hospital classified as "observation status" does not count toward the three-day requirement. Without meeting the requirement, you are responsible for the cost of any skilled nursing care you may require post discharge. You may also incur co-payments for doctors' fees and other hospital services.
In the past, many Medicare beneficiaries did not even know they had been admitted under observation status until after they were discharged and the bills began arriving. That's about to change: Under a new law, the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE), hospitals must alert Medicare beneficiaries when they are admitted under observation status for more than 24 hours, within 36 hours of admission, or upon discharge if it occurs sooner. The hospital must also explain the financial implications. The law goes into effect August 2, 2016.
The law is a step in the right direction, but it has limitations, to say the least. The new law does NOT change the three-day qualifying stay rule. Nor does it allow a day spent as an observation patient to count toward a qualifying stay. The law merely ensures that you are told that you are not considered an inpatient.
Just what can you do with that knowledge? Not all that much. You can try to convince your doctor to reclassify your stay. But even if you are successful, the status change will only apply to future days, not to any days you have already spent in the hospital. That leaves you only one option: appealing after your discharge, which is exceedingly difficult.
Read the text of the NOTICE Act here.