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It was 5 a.m., and 87-year-old Richard Keene got out of bed to help his frail wife go to the bathroom. He fell once, got up, and fell again. The second time, he severely injured his back and

was rushed to a hospital by ambulance. For three days last spring, Keene lay in an upstate New York hospital bed wearing a brace, undergoing tests, eating hospital food, and receiving

medication to help ease his pain. He was then ready to be transferred to a facility for rehabilitation. Keene was on Medicare, so his family assumed that since he was hospitalized for the

three days Medicare requires to pay for rehabilitative care in a skilled nursing facility, the federal health program would cover most of his post-discharge treatment costs. But there was a

problem. The family learned that Keene had never been admitted to the hospital as an inpatient. His stay was classified under what Medicare calls “observation status,” meaning that Medicare

considered him an outpatient.   “He couldn’t move by himself. They were doing tests on him. It seems like he was being treated like a regular patient,” says his daughter, Diane Keene. “I was

really shocked.” While outpatients are not subject to the high hospital deductible under Medicare Part A, which covers hospital care, they are responsible for coinsurance and other charges

under Medicare Part B, which covers outpatient care. Outpatients in observation status don’t qualify for care in a skilled nursing facility, and observation status designations cannot be

appealed. Keene spent two months in a nursing home getting back his strength. But his recovery cost him $24,339. Had Keene been admitted to the hospital as an inpatient, Medicare would have

paid for 100 percent of his care for the first 20 days and then all but the $161-per-day copay for the rest of his stay. The Keenes have a supplemental insurance policy that would have

picked up that copay, his daughter says. “I tried to get them to admit him, but they wouldn’t change his status,” Diane Keene says.