11/19/2025
Medicare Advantage (MA) plans have long relied on extended observation stays to avoid admitting patients as inpatients -- a strategy that helps them reduce costs but shifts financial burden onto hospitals. Recent data show that this practice is worsening. In 2019, MA patients had observation stays 28.6% longer than those in Traditional Medicare. By 2024, the gap widened to 36.9%.
These prolonged observation stays drive up hospital costs without a corresponding increase in reimbursement, further straining hospital finances. Compared to inpatient admissions, observation stays are reimbursed at lower rates — or in some cases, not at all — leaving hospitals to absorb much of the cost. In 2024, MA plans reimbursed just 49% of the actual cost for patients held in observation status, according to industry benchmark data from Strata Decision Technology, LLC.
