Medicare Patients Placed Under “Observation Status” Win Right to Appeal, Federal Court Orders

Media Contact: Vanessa Barrington 510-256-1200

March 24, 2020—Medicare beneficiaries who have been denied coverage for nursing facility services after transferring from hospitals because the hospital changed their status from “in patient” to “observation status” now have a right to appeal their classification and a chance to receive reimbursement from Medicare for the uncovered nursing facility charges.

The distinction between being labeled a hospital “inpatient” versus being placed on observation status is important because Medicare won’t cover certain services if a patient is classified as under observation. For example, it only covers subsequent care in a skilled nursing facility for patients who were hospitalized as inpatients for three or more consecutive days. Patients in the hospital under observation status are considered “outpatients” and thus ineligible for coverage of very costly care at nursing facilities. This has forced many Medicare beneficiaries to either pay thousands of dollars out of pocket for that care or to forgo the needed care altogether. While people with Medicare can appeal virtually any other issue affecting their coverage, the Centers for Medicare &  Medicaid Service (CMS) has blocked attempts by beneficiaries to appeal their hospital status.

This decision was issued in the U.S. District Court in Hartford, Connecticut in the nationwide class action, Alexander v. Azar. The case will allow  thousands of Medicare beneficiaries who were denied coverage for nursing home stays to appeal changes in status to “observation” going back to 2009. Relief could be in the millions of dollars. Justice in Aging filed this case with the Center for Medicare Advocacy with pro bono representation from the law firm Wilson Sonsini Goodrich & Rosati.

“Before this ruling, countless Medicare beneficiaries couldn’t receive medically necessary services in skilled nursing facilities because they could not afford the out-of-pocket costs. Now, they have a constitutional due process right to appeal their classifications and potentially get the care they need,” said Carol Wong, Senior Staff Attorney, Justice in Aging.

“Hospitals have been able to challenge CMS denial of in-patient coverage for years but not patients. Now the playing field is leveled. Because of this case, patients who are shifted to observation status can also show that they should be admitted as in patient,” Said Regan Bailey, Litigation Director, Justice in Aging.

About Justice in Aging

Justice in Aging is a national organization that uses the power of law to fight senior poverty by securing access to affordable health care, economic security, and the courts for older adults with limited resources. Since 1972 we’ve focused our efforts primarily on fighting for people who have been marginalized and excluded from justice, such as women, people of color, LGBTQ individuals, and people with limited English proficiency.



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