One factor could be that hospitals get reimbursed differently depending on treatment. "Observation" status is low-paying but reliable, whereas "Inpatient" pays higher, but may be deemed unnecessary by an insurance company and thus not paid out.
https://www.advisory.com/daily-briefing/2012/08/09/observati..."Many patients are never informed of their hospital status, and physicians say the care provided does not depend on status. However, the status change can have a major impact on patient costs:
- Hospital stay costs: Medicare pays significantly more for inpatient stays—which fall under Part A of the federal program—than for observation stays—which fall under Part B. As such, much of the cost of a Part B hospital stay fall to the patient.
- Post-discharge care costs: Medicare does not cover post-discharge care for Part B observation stays. As such, a patient who is placed on observation status for a broken bone will have to pay the full cost of rehabilitation. In comparison, Medicare pays for skilled nursing care following an inpatient stay that lasted at least three consecutive days. However, patients who are shifted into inpatient status after spending days in observation status must spend three full days in inpatient status to receive the benefit (the time spent in observation status does not count toward the three-day requirement)."
https://www.unitedmedicareadvisors.com/inpatient-and-outpati...