What Observation Status Means in New York

By Bernard A. Krooks, Certified Elder Law Attorney

Currently, there are about 64 million people in the United States who have Medicare.  Medicare is a federal health insurance program for seniors and those with disabilities and it is administered by the Centers for Medicare and Medicaid Services (CMS).  Medicare is divided into parts A, B, C, and D.  Part A covers inpatient hospital and skilled nursing care.  Part B covers doctors’ visits and outpatient care.  Part C, sometimes referred to as Medicare Advantage, is an optional alternative to regular Medicare and combines parts A and B.  Often, Medicare Advantage plans include certain benefits you do not get with regular Medicare and may also have differences in doctor networks.  Part D covers prescription drugs. 


Keep in mind that, in addition to monthly premium charges for certain parts of Medicare, there are significant deductibles, copays and coinsurance. For some, the monthly premiums can increase depending upon how much income you have.  The Medicare Income Related Monthly Adjustment Amount (IRMAA) is an amount you may pay in addition to your regular Medicare premium if your income (which, for this purpose, includes tax-exempt income) exceeds $91,000.

 The increased premiums can be significant.  For example, the basic Medicare Part B premium for 2022 is $170.10 per month. However, under the IRMAA, the maximum you could be required to pay each month is $578.30.  These amounts are adjusted annually based on inflation. 


While it seems straightforward that Medicare part A should cover hospital and nursing home stays, sometimes things are not what they appear to be. 


Typically, when someone enters a hospital, it is through the emergency room. At that point, the emergency room doctor meets with, and examines, the patient and then can either discharge you from the hospital, admit you as an inpatient or put you in “observation status” without being formally admitted to the hospital.  Many people do not realize the financial implications for them that are based, in large part, on what the doctor decides. 


A patient in observation status usually must undergo both physical and mental assessments, including diagnostic tests, short-term treatments, feedings, drug administration, etc. as bases to determine whether the patient can be discharged, continue to be placed in observation status or needs to be treated more intensively as an inpatient. 


Observation services are classified as outpatient services, not covered by Medicare Part A. Thus, a patient will normally have to pay out of pocket for co-payments (a fixed amount you must pay each time you receive a medical service) or co-insurances (the percentage of the total Medicare allowable amount paid for a service that the patient is responsible for). 


These are all costs that the patient might not have to pay if they were admitted and classified as an inpatient, since those costs would be covered by Medicare Part A. Moreover, some individuals are enrolled in Part A but not Part B (for example, someone who is still working and covered under an applicable health insurance plan at work). 


For several years now, New York has, consistent with federal law, required hospitals to provide written and oral notice to the patient or the patient’s representative within 24 hours of the patient being placed on observation status. The notice must specifically state that the patient is not being admitted to the hospital and is being placed on observation status. The notice must further include a statement that observation status may affect the person’s Medicare or insurance coverage for the hospital services, as well as coverage for any subsequent discharge to a skilled nursing home. 


Historically, once you were placed on observation status, there was no way to appeal that decision, even if you disagreed with it.  However, based on a recent federal court decision, certain Medicare beneficiaries (those who were initially admitted as inpatient but then had their status switched to observation status) now have the right to appeal that decision to Medicare and argue that they should be covered as inpatients. The court held that the Medicare program violated the due process rights of people by not providing any recourse for patients who were admitted as inpatients, but whose status was then changed to observation status.  This decision, however, applies only to people who have regular Medicare and not those who have opted for Medicare Advantage plans. 


The federal government is in the process of implementing the court’s decision. Many thanks to the Connecticut based Center for Medicare Advocacy (www.medicareadvocacy.org) for litigating this issue and for all the work they do on behalf of Medicare beneficiaries. 



Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP. He was named 2021 “Lawyer of the Year” by Best Lawyers in America® for excellence in Elder Law and has been honored as one of the “Best Lawyers” in America since 2008. He was elected to the Estate Planning Hall of Fame by the National Association of Estate Planners & Councils (NAEPC). Krooks is past Chair of the Elder Law Committee of the American College of Trust and Estate Counsel (ACTEC). Mr. Krooks may be reached at (914-684-2100) or by visiting the firm’s website at www.elderlawnewyork.com.