Decision in Alexander v. Price Means Medicare Patients Could Gain Right to Appeal Placement on “Observation Status” and Avoid Large Medical Bills

August 1, 2017 – Eighty-four-year-old Nancy Niemi of North Carolina was hospitalized for 39 days earlier this year after her doctor sent her to the emergency room. It took weeks to stabilize her blood pressure and she experienced serious complications. But unbelievably, Ms. Niemi was categorized as an outpatient on “observation status” for her entire hospitalization, and she therefore lacked the three-day inpatient stay Medicare requires for coverage of her subsequent, very expensive care at a nursing home. Ms. Niemi’s son tried to help her challenge her lengthy placement on observation status, but Medicare does not allow beneficiaries to appeal this issue. She still owes thousands of dollars to the nursing facility. However, due to the federal court decision issued July 31, 2017, she is now a member of a nationwide class of hospital patients who may gain the right to appeal their placement on observation status.

In Alexander v. Price, 3:11-CV-1703 (MPS) (formerly captioned Barrows v. Burwell), Judge Michael P. Shea of U.S. District Court in Connecticut, certified a class composed of all Medicare beneficiaries who, since January 1, 2009, have received or will have received “observation services” as an outpatient during a hospitalization. The late Martha Leyanna of Delaware, for example, one of the named plaintiffs in the case, had to pay thousands of dollars for nursing facility care after being hospitalized for six days on observation status. “My mother was treated just like she was inpatient,” her daughter Mary Smith explained, “but she was never allowed to try to prove her case to Medicare. It was very unfair.”

Class members are likely to number in the hundreds of thousands. The court cited a 2012 study by researchers at Brown University that identified 918,180 Medicare beneficiaries who experienced observation stays in 2009 alone. In addition to lacking coverage for very costly nursing home care, patients on observation status can also face increased costs for drugs taken at the hospital and copayments for hospital services, as noted by a recent report from the Department of Health and Human Services’ Office of the Inspector General.

Alice Bers, Litigation Director of the Center for Medicare Advocacy, said that certification of the class is a critical step in creating a fair opportunity to be heard for hospital patients, who can face severe financial and health consequences if they are placed on observation status. “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. We look forward to establishing that the right to review is required as a matter of constitutional due process.”

Another of the plaintiffs’ attorneys, Regan Bailey, Litigation Director of Justice in Aging, added that this case is also important for a broad range of individuals who may have been wrongfully charged. “We are pleased that the Court has recognized the hardship that many older people face when they are unexpectedly billed for the hospital-provided medications or other services. These costs for the named plaintiffs ranged from $335 to $825 – this kind of medical debt can easily overwhelm the budget of a retiree,” she said.

In addition to attorneys from the Center for Medicare Advocacy and Justice in Aging, the class is also represented by attorneys from the law firm of Wilson Sonsini Goodrich & Rosati. The court had previously allowed the case to proceed in a decision issued in February 2017.

Read the full order here.