Important message from your neighborhood community hospitals about your hospital costs

Dear Neighbor

IF YOU’RE COVERED BY MEDICARE and need hospital services, you should be aware of a federal policy that may have a serious impact on you.

Under federal policy, you may be considered an outpatient even if you stay in a hospital overnight. This status is classified as outpatient observation. Placing patients in outpatient Observation, which leaves them vulnerable to extra costs, is not a choice made by your hospital or your doctors. We want to share this important information with you so you can more actively participate in your health care.

When you’re seeking care in a hospital, your doctor may recommend you stay in the hospital to be evaluated and treated, sometimes for several days. While there, you may receive medication, treatment and a variety of services from doctors and nurses. But, even though you are receiving these services, it is possible you may not have been admitted to the hospital as an inpatient. In fact, in our region, more than one out of every four people currently in the hospital for multiple-day stays has actually not been admitted as an inpatient. Instead, because of federal rules, these patients are considered outpatients — in a status referred to as outpatient observation. So it is entirely possible that even though you’ve been told by your doctor to go to the hospital, or if you’ve been a patient in the Emergency Department and told by a doctor you need to stay for as many as several days, you may not have been admitted as an inpatient, and you are instead considered to be in outpatient observation — a status that has financial and clinical consequences that impact you. 

What does this mean to you?

Inpatient hospital admissions are covered by Medicare Part A, while outpatient observation services are covered under Medicare Part B. Unfortunately, the out-of-pocket costs for Medicare Part B — or outpatient observation — may be considerably higher than would be the case if you were admitted as an inpatient. Keep in mind, you’ll receive all the same high-quality care whether you are admitted as an inpatient or placed in outpatient observation status, but you may pay considerably more in the event you are placed in outpatient observation rather than being admitted as an inpatient. Also, if you are not admitted, but rather treated under outpatient observation status, Medicare may not cover any post-hospital services you and your doctor decide that you need, such as rehabilitation or nursing home care. This could cost you several thousand dollars in out-of-pocket costs in addition to the higher cost of the co-payments for your hospital stay. 

Why are the hospitals doing this?

The truth is, the hospitals are not doing this, and neither are your doctors. Unfortunately, the federal government is now penalizing hospitals for inpatient admissions that federal, for-profit contractors determine do not need to be admitted. These contractors — who are paid more money when they overturn your doctor’s decision to admit you — make these decisions by reviewing your hospital medical record, sometimes a year or more after your hospital visit, even though they have never evaluated or treated you. In fact, they are second-guessing your doctors’ decisions, despite your doctors’ professional judgment and their evaluation of your needs. Hospitals have been fighting this bad policy, and the American Hospital Association has filed a lawsuit against the federal government to reverse it. This lawsuit is pending.  

Unfortunately, the hospitals must comply with the policy, or we may be accused of fraud or of being paid inappropriately — placing your community’s hospital assets at risk. Our health systems are committed to doing the right thing for our patients every time, and all the time. We are communicating directly to you because you deserve to know how these federal rules may impact you, and how you can advocate for yourself. We stand ready to help in any way we can, and we encourage you to communicate with your doctor.

We’re grateful for the trust you place in our hospitals, whichever facilities you choose. We will continue to keep you informed as we work together to advocate for changes that are in the best interest of our patients and their families. 

What can you do to protect yourself?

1. Ask your doctor if you have been admitted as an inpatient, and request an update each day you’re in the hospital.

First, you need to know if you were admitted as an inpatient, or if you are in outpatient observation status. This status may change while you are in the hospital, so it is important to receive updates. It is certainly important for you to know your status and, if you are listed as in “outpatient observation,” the reason why.  

2. Tell your doctor everything.

The federally contracted, for-profit companies that will make the decision about whether to override your doctors’ decision rely on their review of your medical record. It is important your doctors know everything about your condition and your medical history so they can appropriately document everything that is required to justify the inpatient admission. Ask your doctor if he/she has thoroughly documented all elements of your condition in your medical record, as any lack of documentation can lead to a federal denial of payment for your inpatient treatment. 

3. Discuss your situation with your hospital case manager.

Our hospitals have case managers who will work with your doctor to ensure we do everything we can to justify your admission as an inpatient in compliance with federal rules.  

Alan Levine, President &  CEO
Mountain States Health Alliance
Denny DeNarvaez, President & CEO
Wellmont Health System


More Seniors Being Held for Observation
Source: Brown University

'Observation Status' Patients Cost More Than Those Admitted, Study Finds
Source: Becker's Hospital Review

Rapid Growth in Medicare Hospital Observation Services: What's  Going On?
Source: AARP


If you have Medicare and are concerned about how outpatient observation status affects your out-of-pocket expenses, please contact your federal lawmakers.

In Tennessee, please call Sen. Lamar Alexander at 423-325-6240, Sen. Bob Corker at 423-753-2263 or Rep. Phil Roe at 423-247-8161. In Virginia, please call Sen. Tim Kaine at 276-679-4925, Sen. Mark Warner at 276-628-8158 or Rep. Morgan Griffith at 276-525-1405. Additional contact information may be found at and