Observation status and Medicare
It is outpatient care
Under Original Medicare, observation services are covered under Part B as outpatient care, even if you spend the night in a hospital bed. That can mean a separate copay for each service instead of one inpatient deductible.
The MOON notice
If you receive observation services for more than 24 hours, the hospital must give you a Medicare Outpatient Observation Notice (MOON) explaining that you are an outpatient and how that can affect what you pay. Ask for it if you do not get it.
Nursing home coverage
Medicare Part A generally covers skilled nursing facility care only after at least three consecutive days as an inpatient. Days under observation do not count toward those three days. If rehab may follow your stay, ask about your status early.
Your daily medicines
Under observation, Part B often does not pay for routine medicines you normally take yourself, such as blood pressure or diabetes pills, and the hospital may bill you for them. Ask whether you can use your own.
Source: Minnesota Attorney General, "Know Your Hospital Status". Education only, not legal or insurance advice.