Federal Judge rules Medicare patients can challenge ‘Observation Care’ status

By Susan Jaffe
Contributing Writer

(Special from khn.org) — Hundreds of thousands of Medicare beneficiaries who have been denied coverage for nursing home stays because their time in the hospital was changed from “inpatient” to “observation care” can now appeal to Medicare for reimbursement, a federal judge in Hartford, Connecticut, ruled last week.

If the government does not challenge the decision and patients win their appeals, Medicare could pay them millions of dollars for staggeringly high nursing home bills.

To receive coverage for nursing home care, patients must first be admitted to the hospital as inpatients for three consecutive days. Time spent in the hospital for observation doesn’t count, even though they may stay overnight and receive some of the same treatment and other services provided to inpatients.

And there’s another big difference: While inpatients can file an appeal with Medicare if they question any other coverage denial, observation patients cannot. So, in 2011, seven Medicare beneficiaries and their families sued the Department of Health and Human Services, in what became a nationwide class action lawsuit.

Late last month, U.S. District Judge Michael Shea ruled that the patients are entitled to appeal if they are admitted as inpatients to the hospital by their doctor but later switched to observation care by their hospital. However, he said patients whose doctors initially place them in observation care under Medicare’s “two-midnight” rule cannot appeal because that rule requires doctors to base their decision on medical judgment. If the doctor determines that a patient’s stay is unlikely to stretch over two midnights, the patient would most likely receive observation care, though there are exceptions.

Shea’s decision applies to all traditional Medicare beneficiaries who experienced such a switch since Jan. 1, 2009, spent at least three days in the hospital and were enrolled in Medicare’s Part A hospital benefit. If they win their appeal, most hospital expenses and any nursing home bills they paid would be reimbursed under Part A.

Shea estimated that hundreds of thousands of beneficiaries would be able to seek repayment.

Lawyers at the Department of Justice argued that doctors and hospitals make admission decisions so patients can’t ask the government to change a decision it didn’t make. A DOJ spokeswoman declined to comment on the decision or whether the government would appeal. They have until May 25 to decide.

Kaiser Health News is a nonprofit news service covering health issues. It is an editorially independent program of the Kaiser Family Foundation, which is not affiliated with Kaiser Permanente. This story also ran on Philadelphia Inquirer.

This article originally published in the April 6, 2020 print edition of The Louisiana Weekly newspaper.