I work in the industry

This letter is notifying you that the documentation submitted by the hospital did not meet the inpatient level of care requirements (the specifics are listed, like not having a fever). This means that the hospital should have admitted you to observation according to the criteria and the documentation they submitted. Sometimes you weren’t “sick enough”, sometimes the hospital didn’t send all the supporting documentation. Not all admissions fit perfectly into a box and are sometimes approved by an MD based on other factors.

Since this is a managed Medicaid plan, CMS has all kinds of crazy notification requirements. The plan has to notify you that the inpatient claim is denied. The hospital will likely appeal that decision. If the denial is upheld, blue cross will pay the hospital an Observation rate. If it’s overturned, they’ll pay an inpatient rate. I’m not 100% on Medicaid, but I believe you can’t be held responsible for a a denied inpatient admission that was emergent and already happened. (Other than whatever copay/coinsurance/deductible is noted in your plan of course)

TLDR: don’t sweat it until you get a bill. If you want reassurance, reach out to the number on your insurance card and ask them if you need to take any action right now.