Bagnall v Sebelius


Medicare Part A pays for “inpatient” hospital care, while Part B pays for outpatient medical care.  In order to qualify for Medicare-covered nursing facility care, one must first have at least three days of “inpatient” Part A hospital care.  Increasingly, however, hospitals are allowing patients to stay under Part B “observation status” without formally admitting them—in some cases up to 1-2 weeks.   The patient may not realize that he or she has not been formally admitted.   Alternatively, the physician may have recommended admission but the hospital may have retroactively reversed that decision.  Generally, the beneficiary does not realize the scope of his or her financial liability for the hospital stay (billed to Part B) until receiving the Medicare Summary Notice months later.  Beneficiaries are not told they can appeal the classification of the hospital stay as outpatient/Part B.

As a result of the use of observation status, the beneficiary is liable for more costs incurred during the hospital stay (Part B cost-sharing, Part D drugs) than he or she would if he or she had been admitted and covered by Part A.  And, after leaving the hospital the beneficiary cannot obtain Medicare coverage for nursing facility care.

Observation status is a term contained only in CMS’ sub-regulatory guidance, not the Medicare statute or regulations.  According to the manuals, it is not generally intended to last more than 24 to 48 hours, although in practice it often lasts much longer.

Plaintiffs request that the court enjoin use of observation status.  The causes of action include:  (1) violation of the Medicare statute for failing to provide nursing facility care to beneficiaries hospitalized for an acute event; (2) violation of the APA notice and comment requirements; (3)violation of Medicare rule-making requirements; (4) violation of FOIA for failure to publish an observation status rule in the Federal Register; (5) abuse of discretion under the APA; (6) due process violations; (7) violation of the Medicare rule that treatment be based on publicly known criteria; and (8) interference with the practice of medicine in violation of the Medicare statute.

As mentioned above, co-counsel is the Center for Medicare Advocacy.


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