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No. 3:00CV563(AVC), filed March 24, 2000

Updated: April 19, 2001

Issue: (1) Whether a four-day stay in a hospital can be considered “outpatient observation” status and thus preclude meeting the 3-day qualifying condition for post-hospital skilled nursing facility care; (2) whether a hospital’s refusal to submit a Part A claim, and thus to keep the plaintiff out of the administrative process, violates the Medicare statute and regulations; (3) whether the notices provided by the hospital were sufficient. (See Below)

Relief sought: Declaratory and injunctive relief to determine inpatient status and to correct the refusal to submit a claim and the failure to provide appropriate notices.

Status: After plaintiffs submitted interrogatories and moved for partial summary judgment, the government suggested a settlement. After negotiations, the parties agreed to a settlement by which the claim for SNF coverage would be returned from the ALJ to the intermediary, who would make a decision on the assumption that three of plaintiffs’ days in the hospital were in-patient. The district judge signed off on dismissal of the complaint, the claim was remanded to the intermediary, and the intermediary ultimately held that 72 days in the hospital were covered (a determination with which the staff of the Center agreed). Payment was made to the nursing home.

The plaintiff is represented by Center attorneys, who are interested in hearing about other situations involving the outpatient observation issue. Please contact Gill Deford at the Center for further information.


Advocates at the Center for Medicare Advocacy recently settled a case involving an individual who was in a hospital bed for four days but was never “formally admitted”. Instead, the hospital accorded her “observation status”. Although Medicare Part B covered her, she was not only not unable to obtain a determination of Part A status, but the hospital refused to submit a claim under Part A because of alleged fears that it would be accused of double billing. Because the hospital refused to submit a claim, she could not obtain a Part A denial, could not appeal that decision, and therefore could not establish a qualifying 3-day hospital stay. In turn, that inability deprived her of the opportunity to have Medicare cover her for 100 days in a skilled nursing facility, with the result that she had to deplete her private savings.  Under the settlement , her time in the hospital will be treated as inpatient for purposes of her skilled nursing facility coverage.

The hospital’s actions violate its own rules and Medicare law. The hospital’s notice specifically stated that “observation status is designed for patients staying in the hospital less than 23 hours.”  The Medicare Intermediary Manual, ‘ 3112.8, states that “[i]n only rare and exceptional cases do outpatient observation services span more than two calendar days” and requires the hospital to seek an exception. No exception was sought or obtained in this case.

The Center assumes that hospitals obtain a financial or some other benefit from improperly maintaining a patient at observation status rather than admitting her. But, the effect on the individual=s ability to obtain skilled nursing facility coverage, as this case indicates, is critical. The Center is interested in whether this problem of abusing “observation status@, with its ultimate effect on skilled nursing coverage under Medicare, is occurring elsewhere. If advocates are seeing or have seen this problem, please contact Gill Deford in the Center’s Connecticut office, at (860) 456-7790.

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