Appeal Rights for Observation Status for Certain Medicare Beneficiaries

In a case that took almost nine years to decide the United States District Court, District Court of Connecticut issued a decision regarding a patient’s right to appeal, under certain circumstances, their observation status assigned during a hospitalization. In Case 3:11-cv-01703-MPS Christina Alexander, et al., v. Alex M. Azar II, Secretary of Health and Human Services, Michael P. Shea, U.S.D.J., ruled that a modified class of Medicare beneficiaries have the right to challenge their appeal their observation status.

The decision to place a Medicare beneficiary in outpatient status or admit to inpatient during hospitalization is critically important for payment for not only the hospital services but also for post-hospital skilled nursing services when needed. Beneficiaries placed in outpatient status have to pay for hospital services out of pocket unless they have other insurance coverage such as Medicare Part B. And, post-hospital skilled nursing services require a three-day inpatient hospital stay to be covered under Medicare Part A. Any delay in admission lowers the odds that the beneficiary will have  a three-day qualifying inpatient stay. The patient is then personally liable for payment for skilled nursing services post-hospitalization. But patients have had no say in and no means to contest the decision to place them outpatient status.

On March 24, 2020, District Judge Shea issued a split decision which afforded only some beneficiaries the right to appeal their observation status. Under the decision, beneficiaries formally admitted as an inpatient who were subsequently reclassified as outpatients may challenge the decision. However, beneficiaries who began and continued their hospital stay as outpatients would not have the right to appeal their status.

The judge reasoned that the decision to convert an inpatient to outpatient invariably occurs through a hospital’s utilization review process. The utilization review staff applies mandatory, nationwide standards set by CMS when reviewing the status of hospitalized beneficiaries. Since the government (CMS) is involved in the utilization review process to change patient status, patients who are converted from inpatient to outpatient  should have the right to challenge that decision. On the contrary, the physician’s decision to place a patient in outpatient status during an entire hospitalization does not constitute a government action and, as such, does not afford a beneficiary the right to challenge that decision.

This decision will help provide relief to some Medicare beneficiaries who may suffer severe financial consequences or forgo post-hospital skilled nursing services because of an inability to pay for necessary care not covered under Medicare Part A as a result of their outpatient status during hospitalization, but only those whose physicians order an inpatient stay, only to have that decision reversed in the UR process.

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About the Authors:

David Glaser, Esq.

David Glaser is a shareholder in Fredrikson & Byron’s Health Law Group and helped establish its Health Care Fraud & Compliance Group. David helps healthcare entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes.

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Denise Wilson, RN, MS, RRT

President AHDAM

Denise serves as the Senior Vice President at Denial Research Group – AppealMasters. Denise has over thirty years of experience in healthcare, including clinical management, education, compliance, and appeal writing. Denise has extensive experience as a Medical Appeals Expert and has personally managed hundreds of Medicare, Managed Medicare, and Commercial appeal cases and presented hundreds of cases at the Administrative Law Judge level. Denise is a nationally known speaker and dynamic educator on Medicare and Commercial appeals processes, payer behaviors, standards of care, appeal template development, and building a road map to drive the payer to a decision in the provider’s favor. She has educated thousands of healthcare professionals around the country in successfully overturning medical care denials.

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