Suit Contests Practice of Patient "Observation Status"

Seven Medicare patients have filed a class action lawsuit challenging a Medicare policy that allows hospitals to place patients under observation for days on end rather than actually admitting them. If these patients then move to a nursing home, they are not eligible for Medicare coverage of the first part of their nursing home stay, costing them or their families thousands of dollars.

Medicare covers nursing home stays entirely for the first 20 days, but only if the patient was first admitted to a hospital as an inpatient for at least three days. In part due to pressure from Medicare to reduce costly inpatient stays, hospitals are increasingly not admitting patients but rather placing them on "observation status" to determine whether they should be admitted.

Although according to Medicare guidelines it should take no more than 24 to 48 hours to make this determination, in reality hospitals sometimes keep patients under observation for up to a week. If the patient moves to a nursing home after being "released," the patient must pick up the tab for the nursing home stay -- Medicare will pay none of it. The bills can run between $200 and $500 a day.

There is little that patients who know they have been placed in observation status can do because they haven't been refused benefits. Medicare is still paying for their hospital stay, although on an outpatient basis.

"There's no official appeal," says Toby Edelman, a senior policy attorney at the Center for Medicare Advocacy. "Medicare has not denied coverage. You're in no man's land."

As ElderLawAnswers reported in 2010, more and more elderly are finding themselves temporary residents of this no man's land. Medicare claims for observation care rose from 828,000 in 2006 to more than 1.1 million in 2009, and claims for observation care that lasted more than 48 hours tripled to 83,183.

Bipartisan bills in Congress that would allow for the time patients spend in the hospital under observation status to count toward Medicare's three-day hospital stay requirement have gone nowhere.  Believing they had no other options, and with harm to beneficiaries and their families continuing, and The Center for Medicare Advocacy and the National Senior Citizens Law Center filed the lawsuit.

The case, Bagnall v. Sebelius (No. 3:11-cv-01703, D. Conn), filed November 3, 2011, on behalf of seven individual Medicare beneficiaries who represent a nationwide class, argues that the use of observation status violates the Medicare Act, the Freedom of Information Act, the Administrative Procedure Act, and the Due Process Clause of the Fifth Amendment to the Constitution.  

"The complaint specifically requests that beneficiaries not be put on observation status, but an alternative remedy would be to treat observation status as covered under Part A," the Center's Director of Litigation, Gill Deford, told ElderLawAnswers.  "A secondary goal is to ensure notice and hearing rights as long as they continue to put people on observation status and cover it under Part B.  The immediate remedy would be to require notice and the right to challenge the placement on observation status." 

In a press release announcing the lawsuit, one of the plaintiffs, Lee Barrows, described her husband's stay in a Connecticut hospital.

"After five days of treatment in the hospital, my husband's neurologist, physician and social worker ushered me into the hallway to tell me that my husband was never admitted. I was stunned with disbelief and tearfully blurted out that I would fight this," said Mrs. Barrows. "His doctors then indicated that this happens once or twice a week." 

For more information about the issues involved in the lawsuit, check out this Center for Medicare Advocacy webpage.