Individuals With Medicare Can Now Appeal Observation Status

February 19, 2021

At the height of the COVID-19 crisis, there was a significant victory for individuals with Medicare as their source of health insurance. In a favorable decision, Judge Michael P. Shea, a federal judge in Connecticut, allowed hospital patients to appeal when an admission status is changed from “inpatient” to an “observation” stay. This admission status directly affects the beneficiaries’ ability to receive Medicare coverage under Part A for skilled nursing care after this hospital stay.

Most individuals do not realize there are different classifications when a loved one has a hospital stay. Frequently, this status is communicated but without any explanation as to the effect of this classification.

What is Medicare Observation Status?

An observation stay is a classification used by hospitals when an individual receives medical care in an outpatient status. Typically, this label is used when physicians or medical professionals are evaluating the patient to determine if they should be discharged or admitted. This usually happens during an emergency room visit where hospital monitoring is necessary.

In reality, sometimes these “observation” stays last a significant period of time. A loved one may even be moved to an actual hospital room, but their medical records classify the stay as “observation” status and they are never admitted.

Individuals classified as “observation” status generally receive the same treatment. Most individuals are completely unaware they have not been admitted to the hospital.

What does Medicare Cover?

Medicare provides those over 65 years of age access to health insurance to pay for hospital and medical costs. Medicare Part A covers inpatient services, skilled nursing facility care, home health and hospice care. Medicare Part B covers other medical and health services not covered by Part A.

When does Medicare cover a Rehabilitation Stay?

The distinction between an “observation” stay and an “inpatient” hospital admission status is significant because of the Medicare coverage of skilled nursing care after an “inpatient” hospital admission. Medicare will not cover any skilled nursing care after an “observation” stay because this stay is covered under Medicare Part B, and not Part A. If an individual is admitted for an “inpatient” stay for three or more consecutive days (the two-midnight rule) they are eligible for outpatient skilled nursing care under Medicare Part A. The two-midnight rule requires an “inpatient” admission for at least two-midnights before Medicare will cover post-hospital skilled nursing care. In addition to the two-midnights, the individual must require post-hospital skilled nursing facility care, receive an admission from a skilled nursing facility and receive the skilled nursing facility care within 30 calendar days from the date of hospital discharge.

The Decision on Medicare Observation Status

This nationwide class action filed in 2011, Alexander v. Azar, deals with this critical classification of “observation” stay versus an “inpatient” stay where an individual is admitted to the hospital. This happens more often than most people realize and the classification is significant for individuals who are critically ill or elderly and will likely need skilled care after this hospital visit.

The Court decided that patients who are admitted to a hospital and their admission status is later changed from “inpatient” to “observation” have a constitutional due process right to appeal to Medicare to request a classification of “inpatient” status.

Nine years later, this is a groundbreaking decision for individuals with Medicare since hospitals have challenged the Center for Medicare Services’ denial of inpatient coverage for years, but this ability to appeal has never extended to patients. For now, the Center for Medicare Services must allow certain patients the right to appeal their classification as “observation” status. This appeal is narrow and limited only to patients designated as “inpatient” and then later changed to “observation” status.

This is a victory for now, because the government did file a Notice of Appeal on May 22, 2020. It will be interesting to monitor this case and see what happens at the appellate level.  To be continued.

If you use Medicare and have any questions regarding your observation status, contact Elder Law and Estate Planning attorney Erika Apelis at efa@kjk.com or 216.716.5637.


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