We Need to End “Observation Status”

(May 2012)

Last November, we joined with the Center for Medicare Advocacy in filing a class action lawsuit against the U.S. Department of Health and Human Services concerning what is often referred to as observation status. A recent study from Brown University published in Health Affairs proves that it is an increasingly common practice that deprives many older patients of their right to hospital coverage under Medicare Part A.

The plaintiffs in Bagnall v. Sebelius are Medicare beneficiaries who received hospital inpatient services, but were improperly classified as outpatients in observation status and, as a result, needed to absorb hospital costs that otherwise would have been paid under Medicare Part A. Stories from families and individuals affected by the practice show that it can cause severe financial problems.

The lawsuit alleges that the government’s practice violates the Medicare Act, the Freedom of Information Act, the Administrative Procedure Act and the Due Process clause of the Fifth Amendment.

Older adults, and people with limited income and resources in particular, are already saddled with high health care costs and should be able to trust that Medicare will cover a hospital stay. Hospitals say they use observation status to avoid audits and prosecution because the federal government seeks to limit short stays in the hospital. However, observation status is only supposed to be used to assess whether a patient should receive more treatment and only for very short periods of time.

Advocates can find out more about this case and how to help beneficiaries affected by observation status by visiting the Center for Medicare Advocacy website.


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