Court Rejects Medicare Observation Status Suit

A U.S. district court has ruled that a group of Medicare beneficiaries who were denied coverage of nursing home care because they were not admitted to a hospital for three days prior to moving a nursing home, but rather were placed on “observation status” for the duration of their stay, cannot compel the government to change the rules governing how hospitals admit patients.  Bagnall, et al v. Sebelius (D. Conn., No. 3:11cv1703 (MPS), Sept. 23, 2013).

Under current Medicare rules, a patient must be admitted to a hospital for at least three days in order for Medicare to pay for the first 20 days of follow-up care in a nursing home.  Many hospitals do not actually admit elderly patients who arrive at their doors; they keep them, sometimes for days at a time, in "observation," a state of limbo that does not qualify as an admittance.  When these seniors are then moved to nursing homes for rehabilitation, Medicare refuses to cover their care because they fail to meet the three-day hospital admittance requirement.  The patients are also responsible for any co-pays required under Medicare’s Part B coverage.

Hospitals’ use of observation status has been growing in response to financial incentives created by Medicare.  In 2011, a group of Medicare patients who were denied care due to this restriction filed a class action  against the Secretary of Health and Human Services, asking for an order eliminating the use of observation status altogether or the crafting of a uniform policy for allowing patients who have been placed in observation to appeal their status.  They argued that the Secretary’s use of observation status violates the Medicare statute, the Administrative Procedures Act, the Freedom of Information Act and the Due Process Clause.  The Secretary moved to dismiss, arguing that the court should not hear the case because the plaintiffs had not exhausted their administrative remedies.

Although finding that it may hear the case, the U.S. District Court for the District of Connecticut nevertheless grants the motion to dismiss.  Leaning heavily on the Second Circuit’s 2008 decision in Estate of Landers v. Leavitt, the court rules that hospitals have the right to determine whether or not to admit patients.  In addition, the court holds that federal Medicare law clearly sets out the rules for coverage of nursing home care and that the plaintiffs may not change it.

Speaking with Kaiser Health News, attorney Alice Bers of the Center for Medicare Advocacy, one of the organizations that helped file suit, said, "The decision removes much of the responsibility for observation status from the Secretary of Health and Human Services and places it on hospitals and doctors, even though the Secretary is in charge of making sure that hospitals meet their Medicare obligations.”

In an e-mail to ElderLawAnswers, Bers added, “We continue to hear from people who are harmed by observation status every day, all around the country.  Some pay the expensive nursing home bill privately.  Others simply cannot afford the expense and forgo the required nursing home care.  The decision underlines the need for passing Rep. Joe Courtney’s bill, H.R. 1179, which would make all time in the hospital count toward the three-day stay requirement.  Observation status can affect anyone on Medicare who needs to go a hospital and then needs rehabilitation and skilled nursing.  The bill has bipartisan support and a growing list of cosponsors in the House and Senate.”

In a related development, the Centers for Medicare and Medicaid Services is delaying enforcement of a new rule requiring hospitals to admit a patient who is expected to stay through at least two midnights.  Both hospitals and patient advocates have opposed the rule.  For details, click here.

For the full text of the Bagnall decision, click here

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