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No. 3:04CV1988JCH (D. Conn.), filed Nov. 23, 2004

Last Updated: September 22, 2009

Issue: Whether the Secretary's policy of not counting time in an emergency room or in "observation status" towards the three-day qualifying hospital stay for purposes of establishing the right to subsequent skilled nursing facility coverage violates the Medicare statute and guarantees of equal protection.

Relief Sought: Declaratory and injunctive relief, on behalf of a nationwide class, to ensure that all time in the hospital is counted towards the three-day qualifying period.

Status:On September 21, 2005, the district court certified a nationwide class of Medicare beneficiaries challenging CMS' interpretation of the 3-day hospital stay qualifying rule.  232 F.R.D. 42 (D.Conn. 2005)  The court determined that it was appropriate to waive exhaustion of administrative remedies, so that the class includes people who have not completed the administrative process. The court also concluded that there was no relevant difference between time spent in the emergency room and time spent on observation status, so that plaintiffs and class members should be treated the same regardless of those specific circumstances.  The class is defined as any Medicare beneficiary who was or will be denied skilled nursing facility (SNF) coverage because of failing to meet the 3-day rule due to having spent part of the hospitalization in the ER or on observation status.  In order to be a member of the class, an individual must have filed a claim for Medicare coverage and that claim must have been "alive"  (i.e., still capable of being pursued in the administrative process) on or after September 24, 2004.

In a disappointing ruling, a federal judge in Bridgeport, Conn. deferred to the government's interpretation of the rule that conditions Medicare coverage for SNF care on spending at least three prior calendar days in the hospital.  The statute says that the individual must have been an "inpatient" for those three days, but the government has interpreted that to mean that the three days must have been in formal admission status.  As a consequence, beneficiaries who spend part of the three days in the ER or on outpatient status are not considered to have been inpatient for three days and are not eligible for the follow-up SNF coverage.  Since patients are often formally admitted from the ER or outpatient status in the middle of the night – and could as easily have been admitted prior to midnight if an admitting doctor or hospital bed had been available –  the effect of the rule is to deprive people who should have been eligible of their SNF coverage.

The Court's lengthy decision (see 2006 WL 2560297 (D.Conn. 2006)) essentially concludes that the government's interpretation is entitled to sufficient deference that the court should not disturb it.  Since the case had already been certified as a nationwide class, the decision on the merits is applicable throughout the country.  On plaintiffs' appeal, amicus briefs supporting the plaintiffs were filed by consumer groups led by AARP, and providers led by the American Health Care Association.

On October 1, 2008, the Court of Appeals affirmed the district court. 545 F.3d 98 (2d Cir. 2008). Judge Livingston, writing for herself and Judge Hall (with the third judge having recused himself), determined that (1) the statute was ambiguous; (2) the policy was not entitled to "Chevron deference" because it was published in a manual rather than through notice-and-comment rulemaking; (3) under the less demanding "Skidmore test" the policy was sufficiently persuasive for the Court to defer, and it would therefore uphold the policy; and (4) the Court's prior decisions did not lead to a different result. The Court also rejected the plaintiffs' equal protection argument on the ground that defining "inpatient" to be based on formal admission was administratively convenient and therefore rational. Finally, the Court held that the district court had not abused its discretion in striking evidence introduced by the plaintiffs outside the administrative record.

Plaintiffs' petition for rehearing or for rehearing en banc was denied on Feb. 11 and Feb. 17, 2009.  Plaintiffs' petition for certiorari was denied on June 29, 2009.  129 S.Ct. 2878. 

For information on the case or issue, contact Gill Deford (gdeford@medicareadvocacy.org) or Toby Edelman (tedelman@medicareadvocacy.org) in the Center's Connecticut or Washington offices, respectively.

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