So hospitals err toward observation. Not because you’re less sick. Because the penalty for classifying you as inpatient incorrectly is financial. The penalty for classifying you as observation incorrectly lands on you. A 2025 study in the Journal of General Internal Medicine analyzed nearly 4 million Medicare hospitalizations. Observation stays were linked to a 4.4 percentage point higher rate of unplanned 30-day hospital returns compared to inpatient admissions.¹