Patients sue over hospital 'observation status'

Plaintiffs file first class-action lawsuit challenging the Medicare policy

A group of patients on Thursday filed a lawsuit challenging a Medicare policy that allows hospitals to place patients under "observation status" for days without admitting them.

Observation status rules
Medicare's observation status policy classifies certain hospital patients as outpatients although they may have stayed in the hospital for several days. Since patients never officially are admitted for inpatient care, they are responsible for a higher proportion of hospital and follow-up care costs. 

According to Reuters, the policy is designed to protect hospitals from incurring penalties for admissions made in error. However, hospitals have increased their use of observation status in recent years, as claims rose from 828,000 in 2006 to more than 1.1 million in 2009. CMS data indicate that claims for observation stays lasting more than 48 hours increased by nearly 300% from 26,176 to 83,183 across that period.

Some experts say certain federal health reform law provisions encourage hospitals to place patients under observation because penalties for 30-day readmissions will not apply to such patients. American Hospital Association EVP Rick Pollack last year wrote a letter to CMS warning that the agency's policies were driving hospitals to place patients under observation status instead of admitting them.

Beneficiaries challenge policy
The Center for Medicare Advocacy (CMA) this week filed a lawsuit in a U.S. district court in Hartford, Conn., against HHS Secretary Kathleen Sebelius on behalf of seven Medicare beneficiaries and their families in Connecticut, Massachusetts, and Texas.

Although patient advocates have been legally challenging the observation policy for years, CMA and the plaintiffs for the first time are seeking class-action status, which would allow a large number of plaintiffs to sue collectively, Reuters reports.

According to CMA Executive Director Judith Stein, the observation status policy "is denying thousands of beneficiaries of their Medicare coverage rights, even though they are inpatients in hospitals." The lawsuit notes that observation status is not mentioned in CMS statutes, and is "applied in an ad hoc fashion to Medicare beneficiaries who for all practical purposes are hospital inpatients."

The lawsuit asks the court to block Sebelius from allowing Medicare outpatient classifications using observation status. According to Stein, Sebelius has the authority to establish Medicare criteria and determine the appropriate use of the designation.

The suit also requests that patients placed under observation status receive a written notification that details the implications for Medicare coverage. Furthermore, the plaintiffs ask the government to establish an administrative review process for patients placed under observation status and review coverage decisions for the named plaintiffs (Morgan, Reuters, 11/3; Pecquet, "Healthwatch," The Hill, 11/3; Erb, Detroit Free Press, 11/3; Levin Becker, Connecticut Mirror, 11/3).


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