Medicare Observation Status Case May Proceed

Reversing a district court, a U.S. appeals court determines that more evidence is needed in a class action suit brought by hospitalized Medicare beneficiaries challenging the fact that they were admitted in observation status and therefore did not qualify for coverage of post-hospital skilled nursing care. Barrows v. Burwell (U.S. Ct. App., 2nd Cir., No. 13-4179-cv, Jan. 22, 2015).

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. Patients who are not admitted are not eligible for Medicare Part A or for coverage of any post-hospitalization stay at a nursing home, so 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.

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 class appealed, arguing that the Secretary's failure to provide an expedited system of notice and review regarding the placement of Medicare beneficiaries in observation status violated the Medicare Act and the due process clause.

The U.S. Court of Appeals, 2nd Circuit, reverses in part, holding that more evidence is needed to determine if there was a violation of the due process clause. According to the court, whether the beneficiaries have a property right in being admitted to the hospital turns on contested facts. The court rules that the beneficiaries made "plausible allegations that, increasingly, admission decisions are not left to the discretion or judgment of treating physicians." The court remands for a period of discovery to focus on whether the beneficiaries have a property interest in being admitted as "inpatients." The court affirms the dismissal of the Medicare Act claim.

In an email to ElderLawAnswers, attorney Alice Bers of the Center for Medicare Advocacy, one of the organizations that helped file suit, said, "[w]e are very glad that the court recognized that hospital patients in observation status may have Medicare appeal rights protected by the Due Process Clause. We think the decision is an important step in establishing that Medicare beneficiaries need to be informed of their status and should have the opportunity to challenge it."

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