Court Upholds Right to Appeal for Certain Medicare Patients on “Observation Status”

January 26, 2022 Contact: Matthew Shepard: 202-293-5760, MShepard@MedicareAdvocacy.org A federal appeals court has decided that Medicare must provide appeal procedures for hospitalized beneficiaries who are reclassified from inpatients to “outpatients” receiving “observation services,” a designation that can have severe ramifications. A nationwide class of Medicare beneficiaries won the right to appeal at a trial held in 2019. The class is represented by the Center for Medicare Advocacy, Justice in Aging, and pro bono firm Wilson Sonsini Goodrich and Rosati. The federal government appealed the trial decision in 2020. In a decision issued January 25, 2022, the U.S. Court of Appeals for the Second Circuit found that the Medicare program violates the due process rights of beneficiaries by failing to provide any recourse for patients who are admitted as inpatients, but whose status is then changed through hospitals’ “utilization review” process. The court found that Medicare strictly regulates those patient status determinations and places strong pressure on hospitals to follow its rules. Noting that “the decision to reclassify a hospital patient from an inpatient to one receiving observation services may have significant and detrimental impacts on [the patient’s] financial, psychological, and physical well-being,” the court held that class members have a constitutional right to appeal to Medicare. One of the key consequences of an “observation” designation is the non-coverage of nursing home care. Such coverage is only available if a beneficiary has been hospitalized for at least three days as an inpatient. Patients like Martha Leyanna of Delaware, described in the court’s decision, may thus spend more than three days in the hospital, receiving identical care to that received by patients classified as inpatients, but because their care has been designated as “outpatient” observation services, still lack the three-day “inpatient” hospitalization that is required for nursing home coverage. Ms. Leyanna, who has since passed away, spent her entire savings of $10,000 for nursing home care. Patients may also be forced to forgo required health care altogether because they cannot afford it without Medicare coverage. Yet beneficiaries whose status is changed from inpatient to observation have no opportunity to appeal to Medicare to show that their deprivation of inpatient hospital coverage was wrongful. The trial court had found that this lack of appeals procedures violates the Due Process Clause of the constitution. Alice Bers, Litigation Director of the Center for Medicare Advocacy, said, “The court recognized that this case is about fundamental fairness. Many older adults and people with disabilities will now have the opportunity to appeal to Medicare for inpatient coverage of their hospital and nursing home services – coverage that can make the difference between getting critical health care and going without.” Carol Wong, Senior Staff Attorney with Justice in Aging said, “In addition to the substantial financial costs borne by patients, the appellate court recognized the emotional and psychological costs that an outright denial of inpatient coverage without recourse has. Now, patients will no longer be forced to forgo medically necessary care simply because of a classification error.” Luke Liss, Senior Litigation Counsel and Pro Bono Counsel of Wilson Sonsini said, “We are thankful to the district court and the court of appeals for their time and careful attention in this matter. We are grateful for the opportunity to advocate in this case alongside our co-counsel for patients across the nation in need of critical care. Given the stakes for often very vulnerable patients who do not have time on their side, we hope that the government will accept this ruling and that a right to appeal for inpatient coverage will be implemented as soon as possible. In any event, our hearts remain with those patients who have been deprived of such opportunity, as well as the doctors and staff that have courageously advocated for them for many years. Fundamentally, this case is about fairness and care for older adults nationwide. We will continue to advocate until the right to an appeal for Medicare coverage is implemented.” The class is estimated to contain hundreds of thousands of beneficiaries with claims dating as far back as 2009. For more information please read the Center for Medicare Advocacy’s frequently asked questions about the case. The Center for Medicare Advocacy (http://www.medicareadvocacy.org), is a national, non-profit, law organization that works to advance access to comprehensive Medicare coverage, health equity, and quality health care for older people and people with disabilities. Founded in 1986, the Center focuses on the needs of people with longer-term and chronic conditions. The organization’s work includes legal assistance, advocacy, education, analysis, policy initiatives, and litigation of importance to Medicare beneficiaries nationwide. Our systemic advocacy is based on the experiences of the real people who contact the Center every day. Headquartered in Connecticut and Washington, DC, the Center also has attorneys in CA, MA, and NJ.