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Judge Allows Medicare Observation Status Appeal Rights Case to Proceed

February 10, 2017

Feb. 10, 2017 – In a decision released on February 8, 2017, a federal judge allowed Medicare hospital patients seeking a right to appeal their placement on “outpatient observation status” to proceed with their lawsuit. The Barrows case, now called Alexander v. Cochran, is a proposed nationwide class action brought by individuals who were forced to pay up to $30,000 for post-hospital skilled nursing facility care because they had been classified as outpatients in observation status during their hospitalizations.

Although care provided to patients on observation status is indistinguishable from inpatient care, it does not count toward the three-day inpatient hospital stay requirement for Medicare coverage of nursing home care. This leaves beneficiaries with the burden of paying for extremely costly nursing and rehabilitative care themselves – or forces them to forgo necessary care.

The court addressed whether Medicare beneficiaries have a constitutionally protected interest in coverage of their hospitalizations as inpatients rather than as observation “outpatients.” If such an interest exists, beneficiaries could appeal their observation status through Medicare’s administrative review process, which they are presently not allowed to do.

The opportunity to appeal is critical because of the severe ramifications that can result from the observation status categorization. The late Martha Leyanna of Delaware, for example, had to pay thousands of dollars to a nursing home because her six-day hospitalization was classified as observation status and thus did not meet Medicare’s requirement of a three-day inpatient stay for coverage of post-hospital care.

The decision documents the plaintiffs’ evidence of how Medicare pressures hospitals, through audits and enforcement actions, to place more patients on observation status, and describes the dogged but unsuccessful efforts of individual plaintiffs to appeal by calling numerous offices and Congressional representatives.

Judge Michael P. Shea of the U.S. District Court of Connecticut concluded that genuine factual disputes remain about the extent to which commercial screening guides used by Medicare contractors and hospitals influence the outcome of patient status determinations. The judge also largely denied the government’s request to dismiss the case on two other grounds, allowing the case to proceed.

Alice Bers of the Center for Medicare Advocacy, lead counsel for the plaintiffs, said “The decision is an important step in the establishment of a fair process for patients who risk having to pay thousands of dollars for necessary medical care or forgo that care altogether. Hospitals routinely appeal Medicare’s determination of whether a stay was inpatient or observation status. Older adults and people with disabilities who rely on Medicare for necessary health care should have the same right.”

In addition to attorneys from Justice in Aging, the plaintiffs are represented by attorneys from the Center for Medicare Advocacy, and the law firm of Wilson Sonsini Goodrich & Rosati. The court ordered the parties to confer and submit a schedule for further proceedings by February 22, 2017.

Justice in Aging is a national non-profit legal advocacy organization that fights senior poverty through law. Formerly the National Senior Citizens Law Center, since 1972 we’ve worked for access to affordable health care and economic security for older adults with limited resources, focusing especially on populations that have traditionally lacked legal protection such as women, people of color, LGBT individuals, and people with limited English proficiency. Through targeted advocacy, litigation, and the trainings and resources we provide to local advocates, we ensure access to the social safety net programs that poor seniors depend on, including Medicare, Medicaid, Social Security, and Supplemental Security Income (SSI).

Contact: Vanessa Barrington
510-256-1200 direct

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