The issue is that when you come to a hospital, for example to have hip surgery. the hospital has the option of formally admitting you or placing you "under observation." You receive the same exact treatment in either case, down to the opportunity of eating the same hospital food. You are seen by the same doctors, have the same hip surgery, and after the same three night stay, if you are released to a skilled nursing facility for rehab, you receive the same care over there. The ONLY thing that differs is who is going to pay for that skilled nursing stay? If "admitted" to the hospital, Medicare pays. If having been "under observation status at the hospital, then you get the honor of paying for it. And that averages out to roughly $400-500/DAY!
Basically there is a huge cost savings to Medicare, as well as to the hospital to place you "under observation" when you arrive. Medicare gets away with not having to pay for your skilled nursing stay. The hospital avoids hefty penalties in the event that you need to come back to their hospital if something goes wrong after the surgery ie. an infection where they did the surgery. If they had originally "admitted" you then having you come back would be a second admittance for the same original problem. That triggers the penalty. Placing you originally "under observation" avoids that second admittance penalty trigger.
Here's a link https://www.nytimes.com/2017/09/01/health/medicare-observation-hospitals.html?emc=eta1&_r=0 to the Times article (copy and paste it into your browser -
the hot link does not seem to be working.) If you have had unpleasant experiences with an unexpected skilled nursing bill please use the comments section to tell us about them (sorry for bringing up your unpleasant experience but hopefully others can learn from it.)
One thing the article doesn't discuss if how you might be able to challenge and change that original classification when it is first made when you arrive at the hospital. A few years ago listening to a director of nursing give a talk at her skilled nursing facility, I recall that she said first off to make it clear at admittance that you want to be formally admitted to the hospital. If they push back on that then contact your primary care doctor and ask him/her to advocate for you.