Court Denies All Government Motions in Class Action Seeking Appeal Right for Medicare Beneficiaries on “Observation Status”

May 1, 2019


NAELA News: In a decision issued on March 27, 2019, a federal judge denied multiple attempts by the federal government to halt a lawsuit by Medicare patients seeking a right to appeal their placement on “outpatient observation status” in hospitals. Alexander v. Azar is a nationwide class action brought by individuals who were forced to pay up to $30,000 for post-hospital skilled nursing facility care because they had been classified as outpatients in observation status, rather than as inpatients.

Although care provided to patients on observation status is often indistinguishable from inpatient care, it does not count toward the three-day inpatient hospital stay requirement for Medicare coverage of nursing home care. This leaves beneficiaries with the burden of paying for – or forgoing – extremely costly nursing and rehabilitative care. The opportunity to appeal is critical because of the severe ramifications that can result from the observation status categorization. Class member Ervin Kanefsky of Pennsylvania, for example, a 93-year-old World War II veteran, had to pay approximately $10,000 for nursing home care after being hospitalized for a shoulder fracture for five days. He was initially admitted as an inpatient but later was told that the “powers that be” had changed his status to observation before he was discharged.

In a 50-page opinion, the court addressed the government’s motion for summary judgment, motion to “decertify” the class, and motion to dismiss the case. Each motion was denied. Judge Michael P. Shea concluded that the evidence plaintiffs submitted could reasonably establish that physician decisions about whether to classify patients as inpatients are “meaningfully constrained” by criteria set by Medicare. Class members may therefore possess a “property interest” in the Medicare coverage they seek, a necessary component of their constitutional due process claim. The court also concluded that the plaintiffs continue to have standing to bring the case, and that their claims are not moot. The court declined to take the drastic step of decertifying the class, but did modify the class definition to target individuals who have been harmed by observation status in specific ways, and requested further briefing from the parties on that issue. In concluding his opinion, Judge Shea emphasized that the action, now approaching its eighth year, must proceed to trial without delay.

Plaintiffs’ lead attorney, Alice Bers of the Center for Medicare Advocacy, welcomed the decision: “People who have paid into Medicare their whole lives, and who risk having to pay thousands of dollars for necessary medical care, deserve a fair process to determine whether they will receive Medicare coverage.” Co-counsel Luke Liss of Wilson Sonsini Goodrich & Rosati, echoed Bers’s observations: “We look forward to showing at trial that these vulnerable patients have a right to appeal to Medicare as matter of constitutional due process.” Co-counsel Regan Bailey of Justice in Aging added, “Hospitals routinely appeal Medicare’s determination of whether a stay was inpatient or observation status. Older adults and people with disabilities should have the same right.”