Outpatient vs. Inpatient: How the Setting Affects Your Medicare Costs
Whether a procedure is performed in an inpatient or outpatient setting can dramatically change what you pay under Medicare. Here is how to understand and manage this important cost difference.
Outpatient vs. Inpatient: How the Setting Affects Your Medicare Costs
One of the most confusing aspects of Medicare cost-sharing is that the same procedure can cost you very different amounts depending on whether it's performed in an inpatient or outpatient setting. Understanding this distinction can help you anticipate costs and make informed decisions.
The Basic Difference
Inpatient care (Part A): You are formally admitted to the hospital. Covered under Medicare Part A. You pay the Part A deductible ($1,340 in 2018) and coinsurance for longer stays. All services during the stay -- including medications -- are bundled into the Part A payment.
Outpatient care (Part B): You receive care at a hospital but are not formally admitted -- you're treated in the emergency department, observation unit, or outpatient surgery center. Covered under Medicare Part B. You pay 20% coinsurance for each service, and medications may be billed separately.
Why the Same Procedure Can Cost More as Outpatient
Consider a knee replacement surgery:
As an inpatient:
- Part A deductible: $1,340
- Days 1-60: $0 additional cost
- All medications included
- Total typical cost: ~$1,340
As an outpatient:
- Part B deductible: $183
- 20% of the facility fee (which can be $15,000-$25,000): $3,000-$5,000
- 20% of surgeon fee
- Medications billed separately
- Total typical cost: $4,000-$7,000+
The outpatient setting can cost you several times more for the same procedure.
Why Hospitals Perform More Procedures Outpatient
Hospitals have financial incentives to perform procedures in outpatient settings -- they receive higher total reimbursement from Medicare in many cases. The shift from inpatient to outpatient has accelerated significantly over the past decade.
Many procedures that were routinely performed inpatient -- knee replacements, hip replacements, cardiac catheterizations -- are now commonly done outpatient.
The Hospital Outpatient Department vs. Freestanding Facility
Another important distinction: hospital outpatient departments charge more than freestanding surgery centers or physician offices for the same procedure.
Example -- colonoscopy:
- Freestanding surgery center: $800-$1,200 (Medicare-approved amount)
- Hospital outpatient department: $1,500-$2,500 (Medicare-approved amount)
Your 20% coinsurance is calculated on the Medicare-approved amount -- so the same procedure costs you more at a hospital outpatient department.
When possible, ask your doctor whether a procedure can be performed at a freestanding surgery center rather than a hospital outpatient department.
How Medigap Helps
Medigap Plan G covers the 20% Part B coinsurance -- eliminating the cost difference between inpatient and outpatient for most services. With Plan G, you pay only the annual Part B deductible ($183 in 2018) regardless of whether care is inpatient or outpatient.
This is one of the most compelling reasons to have Medigap coverage -- it eliminates the unpredictability of outpatient cost-sharing.
Medicare Advantage and Setting
Medicare Advantage plans have their own cost-sharing structures that may differ significantly from Original Medicare. Some MA plans have lower copays for outpatient procedures than Original Medicare's 20% coinsurance -- but others have higher copays for certain services.
Review your MA plan's Summary of Benefits carefully to understand what you'll pay for inpatient vs. outpatient care.
Questions to Ask Before a Procedure
- Will this be performed inpatient or outpatient?
- Is this at a hospital outpatient department or a freestanding facility?
- What is my estimated cost-sharing?
- Is there a less expensive setting where this procedure can be safely performed?
We do not offer every plan available in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
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About the Author
William Gray
Independent Medicare BrokerUS Air Force Veteran · Florida Medicare Specialist
William Gray is an independent Medicare insurance broker based in Daytona Beach and Palm Coast, FL. A US Air Force veteran (A-10 crew chief, Germany), he spent years in corporate insurance before going independent to serve Florida seniors directly. He has helped more than 1,000 clients across Northeast Florida compare Medicare Advantage, Medigap, and Part D plans — always at no cost to the client.
