Traditional Medicare Beneficiary Coinsurance for Hospital Outpatient Services

Medicare hospital outpatient services are paid under Part B. Thus, they are subject to 20 percent coinsurance, as are most other Part B services. 

The Medicare Payment Advisory Commission and the Centers for Medicare & Medicaid Services have noted a rise in the number and length of hospital “observation” stays. Patients in observation status are classified as hospital outpatients, not inpatients, even if they are in a hospital setting for more than 24 hours and are using a hospital bed. The consequences and costs of this classification can be significant. For an observation stay, beneficiaries must pay a percentage of the allowed charge for each outpatient service, including observation. There is no cap on how much they may owe for multiple outpatient services. As an inpatient, their costs would be limited to the inpatient deductible amount. 

Additionally, Part B does not cover the cost of self-administered drugs provided to outpatients. Beneficiaries under observation are typically responsible for the full hospital charges for these drugs, which are often many times the cost of buying the same drugs in a nonhospital pharmacy (e.g., $209 for drugs that cost $43 outside the hospital).  
 
These out-of-pocket costs can quickly add up, in particular for beneficiaries on fixed incomes. Finally, time spent under observation does not count toward the three-day prior inpatient stay required for Medicare to cover subsequent skilled-nursing facility services. Therefore, someone who needs this postacute care may not qualify for coverage, despite spending more than three days in the hospital under observation (see also this chapter’s section on Traditional Medicare Provider Payment—Postacute Care).