Medicare Hospital Stay Rules: What Every Caregiver Must Know

Your parent is in the hospital, and you assume Medicare is covering everything. But there's a hidden trap that catches thousands of families every year: the difference between "inpatient" and "observation" status. This single designation can mean the difference between Medicare covering skilled nursing care—or you paying tens of thousands of dollars out of pocket.

This guide explains what you need to know to protect your parent and your family's finances.

Inpatient vs. Observation Status

What's the Difference?

Why Does This Happen?

Hospitals are under pressure from Medicare auditors. If they admit someone who doesn't meet strict criteria and Medicare later denies the claim, the hospital doesn't get paid. So hospitals have become very conservative—placing many patients on observation status to avoid audit risk.

The result: patients who look admitted (in a bed, getting IV fluids, seeing doctors) are technically outpatient and subject to very different coverage rules.

The 3-Day Rule for Skilled Nursing

How the 3-Day Rule Works

• Your parent must be a hospital inpatient for 3 consecutive days
• The day of admission counts, but the day of discharge doesn't
• The stay must be medically necessary
• After qualifying, Medicare Part A covers up to 100 days of SNF care per benefit period

What Happens Without the 3-Day Inpatient Stay

If your parent needs skilled nursing care but doesn't meet the 3-day inpatient requirement:

• Medicare won't cover the skilled nursing facility stay
• You may have to pay out of pocket—$300-$400+ per day
• Or your parent goes home without needed rehabilitation
• Some Medicaid programs may help, but rules vary by state

Example scenario: Your parent falls and breaks a hip. They spend 4 nights in the hospital, then need rehab at a skilled nursing facility. If those 4 nights were all "observation"—not inpatient—Medicare won't pay for the SNF. You could face $15,000-$30,000+ in bills.

How to Find Out Your Parent's Status

Ask Directly

As soon as possible after arrival, ask:

• "Is my parent being admitted as an inpatient or are they on observation status?"
• Ask the doctor, ask the nurse, ask the case manager
• Get a clear answer—don't assume
• Ask again each day—status can change

Required Written Notice

Hospitals are required to give patients a written notice called the Medicare Outpatient Observation Notice (MOON) if they're on observation status for more than 24 hours. This notice explains:

• That they're an outpatient on observation
• Why they're receiving observation services
• The implications for their costs

What You Can Do

Talk to the Doctor

If your parent is on observation status and you're concerned about SNF coverage:

• Ask the doctor if inpatient admission is appropriate
• Explain your concern about skilled nursing coverage
• Understand that the doctor may not have control—hospital policies and Medicare rules are complex

Request a Case Manager

Every hospital has case managers or discharge planners. They can:

• Explain why the status decision was made
• Help you understand options
• Communicate with the medical team about your concerns
• Help plan for discharge and SNF if needed

File a Status Determination Request

Under the NOTICE Act, you can request that the hospital's Utilization Review Committee review the observation status decision. This is a formal process where the hospital must reconsider whether inpatient admission is appropriate.

Appeal After Discharge

If your parent was on observation status and later denied SNF coverage, you can appeal:

1. Request a redetermination from the Medicare Administrative Contractor
2. If denied, request reconsideration by a Qualified Independent Contractor
3. Further appeals go to an Administrative Law Judge, then Medicare Appeals Council, then Federal Court

Medicare Advantage Plans (Part C)

If your parent has a Medicare Advantage plan instead of Original Medicare, rules may be different:

• Some plans have waived the 3-day hospital requirement for SNF coverage
• But they may have their own prior authorization requirements
• Network restrictions may limit which SNFs you can use
• Always call the plan directly to understand their specific rules

What Hospital Stays Cost Under Medicare

Inpatient Stay (Medicare Part A)

For 2026 benefit period:

• Days 1-60: You pay the Part A deductible ($1,676 in 2026), then Medicare pays the rest
• Days 61-90: You pay $419/day coinsurance
• Days 91+: You pay $838/day using lifetime reserve days (60 total)

Observation Status (Medicare Part B)

• Part B covers services at 80% after deductible ($257 in 2026)
• You pay 20% of costs—which can be substantial
• Prescription drugs may not be covered—you may pay full cost
• Self-administered drugs you normally take may not be covered at all

Skilled Nursing Facility Coverage

When your parent DOES qualify (after 3+ days inpatient):

• Days 1-20: Medicare pays 100%
• Days 21-100: You pay $209.50/day coinsurance (2026)
• Days 101+: Medicare doesn't cover—you pay full cost

Requirements for coverage:

• 3 consecutive days as hospital inpatient within 30 days before SNF admission
• SNF care is for condition treated in hospital (or related condition)
• Doctor certifies skilled care is needed
• SNF is Medicare-certified

Planning Ahead

If Your Parent Has a Medigap Policy

Medicare Supplement (Medigap) policies can help with:

• Part A hospital deductible
• SNF coinsurance (days 21-100)
• But Medigap only helps when Medicare covers the service first
• If Medicare doesn't cover (no 3-day inpatient stay), Medigap won't either

Consider Long-Term Care Insurance

If your parent has long-term care insurance, it may cover SNF stays that Medicare doesn't. Check the policy for:

• Benefit triggers
• Waiting periods
• Daily benefit amounts
• Covered facilities

Key Questions to Ask at the Hospital

Key Takeaways

• Hospital beds don't mean inpatient status—always ask
• Only inpatient days count toward the 3-day requirement for SNF coverage
• Observation status looks the same but has very different Medicare implications
• Hospitals must give written notice (MOON) for observation stays over 24 hours
• Ask about status early and often—it can change
• Work with case managers and consider appealing if you believe status was wrong
• Medicare Advantage plans may have different rules—call and ask