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Medicare patients considered hospital outpatients on Observation Status may be helped by a decision issued on January 22, 2015 by a federal appeals court.  A three-judge panel of the U.S. Court of Appeals for the Second Circuit decided that Medicare patients who are placed on “Observation Status” in hospitals may have an interest, protected by the Constitution, in challenging that classification.

The Medicare beneficiaries who brought the case, represented by the Center for Medicare Advocacy and the National Senior Citizens Law Center, were forced to pay thousands of dollars for post-hospital skilled nursing care because they had been classified as being in “Observation Status” rather than as “inpatients.”  Patients can be on Observation Status for many days in a regular hospital room, with no sign that they are not technically inpatients, but they generally do not find out about this status until they are leaving the hospital, and Medicare does not allow them to challenge the classification.

The Department of Health and Human Services claimed that the decision to admit Medicare beneficiaries as inpatients is left purely to the discretion of doctors.  The plaintiffs argued that it is really Medicare that directs those decisions.  The opinion states that the lower court must determine exactly “how, in practice, the relevant admissions decisions are made.” It held that the district court erred when it dismissed the plaintiffs’ due process claims, and it sent the case back to that court for further proceedings.  Today’s decision represents an important step in establishing that hospital patients on Medicare need to be informed of their status and should have the opportunity to challenge it. Without those appeal rights, older people and people with disabilities continue to be left with higher hospital bills, and with paying the astronomical cost of post-hospital care, or forgoing that care altogether. 

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