Nursing homes and Medicare advocates hope a new federal court ruling will lead to eliminating a CMS policy denying some patients coverage for skilled-nursing stays.
The ruling grants patients the right to appeal hospital decisions to put them on observation status.
U.S. District Judge Michael Shea in Hartford, Conn., ruled March 24 in a class action case that Medicare beneficiaries who initially were admitted by physicians but had their status changed by hospitals to observation have a constitutional right to challenge those hospital decisions.
That's important because Medicare Part A does not pay the costs of hospitalization or post-acute skilled nursing stays for patients held on observation status, often leaving patients with large hospital or nursing home bills.
Beneficiaries only qualify for skilled nursing home coverage if they have a three-day prior hospital admission. Advocates say patients held on observation status often skip needed post-acute care because Medicare won't pay for it.
"These class members must be afforded some means to challenge the decision that effectively stripped them of their property interest in Part A benefits," Shea wrote in his 114-page opinion, which followed nine years of litigation and a bench trial last summer.
The CMS has temporarily waived the three-day hospitalization requirement for SNF coverage as part of its emergency response to the COVID-19 pandemic.
Shea's ruling applies to hundreds of thousands of beneficiaries going back to 2009, as well as to qualifying beneficiaries going forward.
Nursing home groups applauded the decision, and noted the CMS lifted the three-day requirement during the coronavirus pandemic.
"We believe that ultimately the law needs to change so that the restrictions on Medicare eligibility because of observation status should be repealed," said Katie Smith Sloan, CEO of LeadingAge, which represents not-for-profit long-term care providers.
HHS has until late May to decide whether to appeal. The CMS said it's reviewing the court decision.
The plaintiffs did not win all the relief they sought. Shea held that beneficiaries who initially were placed by their physicians on hospital observation status and were never admitted as inpatients do not have the right to appeal that status.
The judge said that there is enough government involvement in hospitals' decisions to change patients' status from inpatient to observation to find that patients are unconstitutionally deprived of their property interest in Medicare Part A coverage if there is no due process appeal right.
But patients who were never admitted as inpatients don't have the right to appeal because the physicians' decision to place them on observation status does not constitute government action subject to due process rights, the judge wrote.
Shea ordered the HHS secretary to establish a procedure allowing Medicare beneficiaries who were initially admitted as inpatients and then had their status changed to observation to appeal the hospitals' decision that led to denial of their Part A coverage.
Medicare advocates said the ruling could save many Medicare patients thousands of dollars in out-of-pocket costs for hospitalizations and skilled nursing visits if they appeal and win. More broadly, it establishes that beneficiaries have constitutional safeguards for their Medicare coverage.
"We are gratified the court recognized that Medicare is a constitutionally protected interest, which can't be denied without a fair opportunity to appeal," said Alice Bers, litigation director for the Center for Medicare Advocacy, which brought the case along with Justice in Aging and the law firm Wilson Sonsini Goodrich & Rosati.
Nursing homes also may benefit from the ruling, if it stands, because the three-day hospitalization policy has led to large uncollectible bills, said Dan Mendelson, operating partner at Welsh Carson and former CEO at Avalere Health.
He also said the ruling could prompt the CMS to reconsider its controversial rules requiring physicians and hospitals to determine whether patients' hospital care should be considered observational or inpatient.
The HHS Office of Inspector General and the Medicare Payment Advisory Commission both have recommended that the CMS count observation days toward the three-day minimum required for covering SNF stays.
CMS Administrator Seema Verma said in a tweet last August that her agency is "listening to feedback" on the issue, saying government policy "doesn't always make sense."
"Observation stay rules drive hospitals crazy," Mendelson said. "This ruling is an indication that the policy is complex and burdensome and needs to be revisited. It could cause CMS to look at those rules."
