Did you know that your senior on Medicare may end up surprised by a very costly bill for medication administered during a hospital stay? At the same time he may be disqualified from receiving Medicare-covered rehabilitation services, even though he may have been in the hospital for the required three nights?

In an effort to curb escalating costs, Medicare is now closely examining hospital admission records to identify patients who were admitted when they possibly should not have been. As a result, in order to avoid possible penalties, doctors are now keeping an increasing number of patients in hospital beds for "observation."

"Observation" is a situation in which a patient may be moved from the emergency department to a hospital room if the doctor is uncertain whether a short course of treatment or a period of observing how a patient is responding to treatment may resolve a medical issue. If the patient responds, then he or she is sent home, never having been formally admitted to the hospital. If not, then the patient is actually admitted to the hospital. This could even be as many as several days later.

Even though occupying a hospital bed, while the patient is "under observation," he or she remains an outpatient as far as the hospital and Medicare are concerned.

While observation is not supposed to last longer than 48 hours, this is no hard and fast rule. Some patients have spent as long as 10 days or more in the hospital under observation.

As an outpatient, the patient is not covered by the hospital portion of Medicare (Part A), but by Part B, which covers 80% of doctors, laboratory tests, X-rays, etc. The important thing to know is that Part B does not cover medications. Neither does any MediGap or secondary insurance policy. Therefore, most of the drugs or medications that a patient receives while under hospital observation will not be covered by Medicare. The patient will receive a bill for all of these drugs at the inflated hospital price.

The patient may petition his private Part D drug carrier for coverage, but there is no guarantee that the Part D carrier will come through. It is highly unlikely that the hospital is on the preferred drug provider list for a part D insurance plan, so if coverage for medications received in the hospital while under observation is offered at all, it may well be at a greatly reduced rate.

Keep in mind also that any days spent in the hospital under observation will not count toward the three-day inpatient stay required before a patient will qualify for post-hospital rehabilitation under Medicare. If a patient spent two days under observation, and then two days as an inpatient, he may have been under the hospital's roof for four days, but he was only an inpatient for two. He will not qualify for Medicare-covered rehabilitation.

It is becoming increasingly important to verify that your loved one has actually been admitted to the hospital. Just because he or she is in a hospital room does not mean your elder has been formally admitted. And because this status can change at any time, in either direction, it is important to check every day. The hospital powers that be may be annoyed by your constant checking, but this is the only way you can be sure.

The following chart, adapted from information provided by Medicare, may help to clarify several possible "observation" situations: