Medicare Patients Sue HHS to Recover Costs for Observation Care


On August 19, 2019, a trial over a controversial Medicare policy will begin in federal court in Hartford, CT. The class action lawsuit was filed in 2011 by seven Medicare patients and their families, later joined by seven more plaintiffs, against the Department of Health and Human Services (HHS).

The policy covers “observation care,” which happens when a patient’s doctors believe the patient is too sick to go home but not sick enough to be admitted, and often includes services provided to admitted patients. However, under Medicare rules, observation care is considered an outpatient service, which means that patients often have to pay a larger portion of the hospital bill than they would if they were admitted as an inpatient.

Moreover, Medicare’s nursing home benefit is only available to patients admitted to the hospital for three consecutive days, meaning that patients who remain in the hospital under observation care are denied that benefit. Unlike other Medicare decisions, patients cannot file an appeal over disputes involving observation care.

In 2013, Medicare created the “two-midnight” rule, which states that if a doctor expects a patient to be sick enough to remain in the hospital for two midnights, that patient should be admitted as an inpatient. Government lawyers argue that the government cannot be blamed for decisions made concerning observation care since the “two-midnight” rule gives decision-making authority to doctors, but some doctors claim the rule is illogical.

HHS’ Office of Inspector General issued a list of recommendations to the agency last month, including counting observation care toward the three-day requirement for nursing home coverage. If the plaintiffs win the case, Medicare beneficiaries who received three or more days of observation care services since January 1, 2009, would be able to file appeals for reimbursement.

To learn more about the case and the observation care policy, click here.


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