Judge Dismisses Hospital ‘Observation Care’ Lawsuit

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A lawsuit filed by fourteen seniors, including seven from Connecticut, seeking Medicare nursing home coverage was dismissed Monday by a federal court judge in Hartford.

The seniors were among more than a million Medicare beneficiaries who enter the hospital for observation every year. Because they did not spend at least three consecutive hospital days as admitted patients, Medicare will not pay for their nursing home care.

In their lawsuit, they argued that there is little difference between observation and admitted patients, except when it comes to paying tens of thousands of dollars in nursing home bills. They asked the judge to eliminate the ‘observation care’ designation or at least set up an expedited appeals process so that their observation status would be reviewed.  They also wanted the judge to order Medicare officials to require hospitals to tell patients if they are receiving ‘observation care’ and have not been admitted.

In his 50-page ruling, Judge Michael P. Shea of the United States District Court, District of Connecticut, relied mostly on a 2008 federal court decision that upheld the right of the Secretary of the Department Health and Human Services, which includes the Medicare program, to permit hospitals and doctors to determine when patients should be admitted or kept for observation.  He also referred to the federal law that restricts Medicare coverage for follow-up nursing home care to admitted patients only.

“The decision removes much of the accountability for observation status from the Secretary of Health and Human Services,” said Alice Bers, an attorney at the Center for Medicare Advocacy, which represented the seniors.  Because hospitals paid by Medicare have to follow Medicare rules, she said federal officials should be held responsible for this problem.

“We are reviewing the lengthy decision carefully and considering possible next steps,” Bers added.

Medicare officials declined to comment on the decision.

In one of the few points of agreement with the seniors, the judge rejected a key argument from lawyers defending the U. S. Department of Health and Human Services, claiming that the seniors should have gone through the appeals process before filing a lawsuit.

He wrote that Medicare patients  “may be forced to forego needed medical care in the future, causing further health deterioration, while an administrative appeal is pending. For these Plaintiffs, winning an administrative appeal would not remediate the harm done to them by an initial denial of benefits.”

He also agreed that observation patients have a greater financial liability than admitted patients because they are not eligible for nursing home coverage.  He referred to one of the Connecticut seniors in the lawsuit who had to pay a $30,000 bill from her nursing home.

Monday’s decision does not affect a separate lawsuit filed last year by the American Hospital Association, which also seeks to eliminate observation status.  Hospitals complain about the practice because they forfeit their Medicare payment for admitted patients who the agency later determine should have received less expensive ‘observation care.’

“I am disappointed in this decision,” said U.S. Rep. Joe Courtney, D-2. He has introduced legislation he said “would ensure that after a three-day hospital stay—regardless of inpatient or observation status—seniors  are covered for skilled nursing care when a doctor prescribes it, improving outcomes and giving families peace of mind.”

“For Congress, the meaning of this decision is crystal clear—we need to enact H.R. 1179 to protect the rights of Medicare beneficiaries and their families,” he said.

Contact Susan Jaffe at Jaffe.KHN@gmail.com

Read previous stories on observation care here and here.



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