Federal Judge OKs A Class Action Lawsuit Over Medicare Observation Appeals – Forbes

Two of the greatest sources of frustration for Medicare recipients and their families are hospital observation status and the government’s incredibly complex appeals process. On Monday, a federal judge in Hartford CT, certified a class action lawsuit aimed at addressing both. The judge’s eventual decision in the case (Alexander v. Price) could have far-reaching effects on both the burgeoning use of observation status in hospitals and the rights of people getting Medicare to dispute decisions about their care.

Observation status is intermediate hospital-based care between the emergency department and admission. For example, it may be used for someone who comes to the ED with chest pain but is not suffering heart attack. Doctors may want to keep an eye on the patient for a day or two but determine that she does not require a formal admission. Care is usually provided in a special observation unit, sometimes called a clinical decision unit or CDU.

Observation care is not new. It has been around since the 1970s and it serves an important clinical purpose. But over the past several years, it has become increasingly common. Observation cases doubled from 2006 to 2014, to 1.6 million, according to Medicare.

Medicare audits

What happened?  Medicare auditors have been pressuring hospitals to use observation rather than admissions as a cost-saving measure. Medicare payments for observation patients vary by condition but are roughly two-thirds of its payment for an admission. Worse for a hospital, if Medicare auditors determine that a patient should have been placed in observation rather than being admitted, the hospital must refund its full payment from Medicare, not just the difference between the two rates. Thus, risk-averse hospitals encourage doctors (who make the final call) to use observation.

The growth of observation has created confusion and significant financial issues for some patients.

There are two big ones. The first is that Medicare patients in observation are covered as outpatients under the rules of Medicare Part A rather than inpatients under Part B. In other words, they must pay the same copayments as if they were visiting a doctor’s office. On the other hand, they are not required to pay the Part B hospital deductible.  Confused? You should be.

The three-day rule

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