Court Certifies Class in Medicare Observation Status Lawsuit

A U.S. district court certifies a class in a lawsuit by Medicare beneficiaries who were placed in observation status during a hospitalization and are seeking the right to administrative review of that decision. Alexander v. Price (U.S. Dist. Ct., D. Conn., No. 3:11-cv-1703 (MPS), July 31, 2017).

A group of Medicare beneficiaries who were placed in "observation status" by their hospitals rather than being admitted as inpatients filed a class action lawsuit against the Secretary of Health and Human Services. Because patients who are not admitted are not eligible for Medicare Part A or for coverage of any post-hospitalization stay at a nursing home, the lawsuit claims that being put into observation status cost the beneficiaries thousands of dollars. The group maintains that Medicare's policies promote the use of observation status.

After the district court granted the Secretary's motion to dismiss, holding that whether to admit a patient is a complex medical judgment that should be left to the discretion of doctors, the U.S. Court of Appeals for the Second Circuit reversed in part, holding that more evidence was needed to determine if there was a violation of the due process clause, and remanded the case for a period of discovery to focus on whether the beneficiaries have a property interest in being admitted as "inpatients." The parties both filed motions for summary judgment. The district court denied both summary judgment motions, holding that there is a dispute of material fact as to whether the beneficiaries have a property interest. The group filed a motion to certify a class.

The U.S. District Court, District of Connecticut, grants class certification. The court adopts the following class certification: "All Medicare beneficiaries who, on or after January 1, 2009: (1) have received or will have received 'observation services' as an outpatient during a hospitalization; and (2) have received or will have received an initial determination that the observation services are covered (or subject to coverage) under Medicare Part B. Medicare beneficiaries who meet the requirements of the foregoing sentence but who pursued an administrative appeal and received a final decision of the Secretary before September 4, 2011 are excluded from this definition." The court refuses to limit the class to beneficiaries who were denied coverage of long-term care after their hospitalization because even the small dollar amounts of in-hospital costs "can create an important private interest."

Class members are likely to number in the hundreds of thousands, according to the Center for Medicare Advocacy, which has spearheaded the litigation. “The decision recognizes that Medicare patients across the country face dire situations, including having to choose between spending thousands of dollars on nursing home care or simply forgoing that necessary care,” said Alice Bers, the Center’s litigation director. “We look forward to establishing that the right to review is required as a matter of constitutional due process.”

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