A Medicare advocacy group is seeking early notice and an appeals process for hospital patients designated for observation rather than inpatient status.
One of the highest courts in the land is focusing on one of the hottest issues in healthcare.
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Attorneys from the Center for Medicare Advocacy and the federal government recently sparred in the US Court of Appeals for the Second Circuit over a lawsuit linked to the distinction between inpatient and observation status at hospitals.
The stakes are high for Medicare beneficiaries, who face paying the whole bill at skilled nursing facilities if they are transferred from the hospital without spending at least three days designated as inpatient status.
Observation Status Sparks Legal Firestorm
In November 2011, seven Medicare beneficiaries or their estates filed a federal lawsuit against Kathleen Sebelius, who was then serving as secretary of the US Department of Health and Human Services. Bagnall v. Sebelius asked the federal District Court in Connecticut to find HHS's observation status rule in violation of the Medicare statute. The plaintiffs also sought creation of public notice and appeal rights for Medicare beneficiaries placed under observation status.
In September 2013, a District Court judge granted a government motion to dismiss Bagnall v. Sebelius, prompting CMA to file an appeal.
In New Haven, CT, this month a three-member panel of the US Court of Appeals for the Second Circuit heard oral arguments on CMA's appeal.
Alice Bers, an attorney for CMA, approached the immaculately finished, dark-wooden podium to face the judges first. "The issue before us today is about notice and appeal rights," she said, then was quickly interrupted by Judge Ralph Winters, who asked whether doctors or HHS regulators are driving the decision-making on determining Medicare patients' hospital admission status.
"We differ with Medicare on this," Bers replied. "The decision is being driven by the agency."
Judge Jose Cabranes noted that CMA had drawn support from "an impressive array" organizations and asked what kind of information CMA is seeking from the government in the appeal process.
Bers replied that the plaintiffs and healthcare providers need a clear understanding of "the criteria" that are the determining factors in deciding whether someone is an inpatient or designated for observation status. "You can see the providers struggling to comply," she said.
The American Medical Association and the American Health Care Association are among those who have filed briefs in support of the plaintiffs. The American Hospital Association has filed a brief that does not explicitly support the plaintiffs, but describes how AHA's members are struggling to comply with Medicare's observation status rules.
Pressed by Winters for her clients' "ultimate objective," Bers said the plaintiffs want the case to be sent back to District Court, where they will press for a requirement that patients receive notice as soon as possible about their admission status and the possible financial consequences as well as "a clear appeal process."
Walker chimed in again: "You have a due process problem. You would like to get that nailed down through discovery (of information from HHS)."
Government's View
Jeffrey Clair, an appellate staff attorney at the U.S. Department of Justice Civil Division, took his turn at the podium and argued that the plaintiffs have no "property interest" at stake because they have no right "to be admitted to a hospital on an inpatient basis." He added that the determination of patient admission status is strictly a medical decision at the discretion of physicians.
Walker and Winters pressed Clair on whether there are clear standards for setting admission status and whether bureaucrats could second-guess a doctor's admission-status determination. "The Medicare people accept without question the doctor's decision on whether someone is admitted [as an inpatient]?" Winters inquired.
"Your honor, it's a little more complicated than that," the DOJ official said.
Then Winters hammered Clair on the issue of patients' reasonable expectations. "The fact is, we have plaintiffs here that spent eight days in the hospital… and I find it hard to believe they were not in admitted status," he said.
Clair replied that when hospitals make the determination that a patient has been designated in observation status, which Medicare pays at relatively low Part B reimbursement rates compared to Part A inpatient rates, there is no second-guessing in Washington. "When the claim is submitted for Part B status, the [HHS] secretary does not look at whether the patient was properly admitted," he said.
The next line of questioning from the judges turned to the issue of Medicare patients' admission-status notice and appeal rights.
"They want to get notice upfront at the hospital," Walker said of the plaintiffs. "They want the opportunity to be heard, even if they are in the hospital. Why is the agency fighting that so hard? Is that burdensome?"
Clair replied that Medicare officials have no legal basis to require hospitals to notify patients about admission status and the possible financial consequences of being designated in observation. "The statute doesn't call for it," he said. "The government has no statutory authority to order it."
The DOJ official added that state legislatures are creating laws to require hospitals to provide admission-status notice to their patients. "This is becoming increasingly irrelevant in New York and Connecticut," Clair said. "The state of Connecticut, as of October 1 … has now required common notice."
Reading the Tea Leaves
After the hearing, Bers and Clair offered guarded assessments of the appellate judge's questioning.
"It's always dangerous to read the tea leaves, but they were clearly interested in the due process issue," Bers said in an interview outside the courtroom. "They seemed to understand people in hospitals are really in the dark."
Clair had to leave the courthouse immediately after the hearing, but provided the following comment via email: "I thought the judges asked some hard questions for both sides and really do not have a clear sense of how they might rule."
Gil Deford, JD, CMA's director of litigation, appeared in court with Bers but did not participate actively in the advocacy group's oral argument presentation. He said the CMA had made a strong case to compel the appellate court to send the notice and appeal rights issues back to District Court.
"The judges understood the counter-intuitive nature of observation status," he said. "Most people don't find out until they leave the hospital. That's why you need early notice. You need notice upfront."
Bers said the appellate court is likely to rule on the CMA appeal in less than a year. "It can be as quick as two months or take eight months," she said. "The average is three to four months."
Christopher Cheney is the CMO editor at HealthLeaders.