Class-action Challenges Observation Status Determinations - Seeking Medicare Eligibility for Nursing Home Care

More than 1.3 million Medicare observation stay claims could be appealed if a class-action lawsuit filed against the Department of Health and Human Services is successful.

The lawsuit challenges a rule that requires an individual to spend three consecutive days as a hospital inpatient in order to receive Medicare skilled nursing coverage. The lawsuit was first filed in 2011 by seven Medicare observation patients but now figuratively represents hundreds of thousands.

Patients are often admitted to hospitals under observation status — and remain at that designation without their knowledge, sometimes for multiple days — before being sent to a skilled nursing facility. Medicare normally pays for some nursing home care following a three day hospitalization. Observation care, however, is considered outpatient service and doesn’t qualify as a prerequisite for Medicare’s nursing home coverage, often leaving patients responsible for unexpected medical expenses.  

Patients were often wholly unaware of the fact that they were being treated under observation status, prompting passage of the NOTICE Act, about which you can read more here.  Even with the protections of the Act, however, patients are often unable to make real decisions regarding their care and status, and consequently, patients often find themselves responsible for large nursing home bills which remain uncovered by Medicare if the care follows a hospital stay deemed under observation status.

Worse, the determination that the stay is under observation status cannot be appealed to Medicare. The class-action lawsuit challenges the provision that Medicare disputes involving observation claims are not subject to appeal.

“This is about whether the government can take away healthcare coverage you may be entitled to and leave you no opportunity to fight for it,” Alice Bers, litigation director at the Center for Medicare Advocacy, one of the groups representing the plaintiffs, told Kaiser according to an article in Kaiser Health News.

If successful, people with Medicare who received observation care services for three days or more from January 2009 through 2017 would be able to file an appeal and seek reimbursement for bills the program should have paid, according to the report. About 1.3 million observation claims reportedly meet that criteria.

In March, industry advocates praised legislative efforts that would allow patients under observation stay to be eligible for Medicare skilled nursing coverage.  In a statement to the U.S. House Ways and Means Health Subcommittee in May, the Observation Stays Coalition urged Congress to address observation stays while discussing surprise medical billing. The coalition is composed of several beneficiary and provider organizations, including LeadingAge, the American Health Care Association, the American Association of Post-Acute Care Nursing and the National Association for the Support of Long Term Care.

“Unfortunately, there have been countless heart-wrenching stories from older people and their families who have had to pay high out-of-pocket charges since they were deemed to be on observation status, and Medicare did not cover their necessary skilled nursing facility care. Often, these individuals didn’t even know they were on observation status — or know to ask,” the statement said. “It is simply not right to limit access to quality care for those most in need.”