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Federal Court Orders Appeal Rights on “Observation Status” Issue for Certain Medicare Hospital Patients

Dana Ritchie 

In a decision issued yesterday, March 24, 2020, Judge Michael P. Shea of the U.S. District Court in Hartford, Connecticut found that certain Medicare beneficiaries who are placed on “observation status” at hospitals, rather than being admitted as “inpatients,” have the right to appeal to Medicare.  The case, Alexander v. Azar, is a nationwide class action case filed by the Center for Medicare Advocacy that went to trial in August 2019.  The ruling finds that as a matter of constitutional due process, patients who are initially admitted as inpatients by a physician, but whose status is later changed to observation by their hospital, have the right to appeal to Medicare and argue for coverage as hospital inpatients.

The decision opens the door to medically necessary services in skilled nursing facilities that Medicare beneficiaries might otherwise have to forgo because they cannot afford to pay for it themselves.  The distinction between being labeled a hospital “inpatient” versus being placed on observation status is important because Medicare only covers subsequent care in a skilled nursing facility for patients who were hospitalized as inpatients for three or more consecutive days.  Patients in observation status are considered “outpatients” and thus ineligible for coverage of care at nursing facilities.  You can read the full press article about this on the Center for Medicare Advocacy’s website here. 

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