A U.S. district court rules that Medicare beneficiaries who are admitted as inpatients, but whose status is changed to observation have a due process right to appeal the decision, but Medicare beneficiaries who are admitted under observation status, do not have right to appeal the decision. Alexander v. Azar (U.S. Dist. Ct., D. Ct., No. 3:11-cv-1703 (MPS), March 24, 2020).

A group of Medicare beneficiaries who were placed on “observation status” by their hospitals rather than being admitted as inpatients filed a class action lawsuit against the Secretary of Health and Human Services. Because beneficiaries who are not admitted are not eligible for Medicare Part A or for coverage of any post-hospitalization stay at a nursing home, the lawsuit claims that being placed on observation status cost the beneficiaries thousands of dollars. The group maintains that Medicare’s policies promote the use of observation status.

After the district court granted the Secretary’s motion to dismiss, holding that whether to admit a patient is a complex medical judgment that should be left to the discretion of doctors, the U.S. Court of Appeals for the Second Circuit reversed in part, holding that more evidence was needed to determine if there was a violation of the due process clause, and remanded the case for a period of discovery to focus on whether the beneficiaries have a property interest in being admitted as “inpatients.” The parties both filed motions for summary judgment. The district court denied both summary judgment motions, holding that there is a dispute of material fact as to whether the beneficiaries have a property interest and certified a class.

The U.S. District Court, District of Connecticut, rules that Medicare patients who are admitted as inpatients by a doctor, but whose status was changed to observation have a due process right to appeal that decision to Medicare. However, the court also rules that patients who are placed on observation status and never admitted as inpatients do not have a right to appeal. According to the court, evidence showed that when a hospital changes a patient from inpatient to observation it is because the hospital is applying federal standards under pressure from the Secretary, so “there is enough involvement by the government to find that the deprivation of [the patient’s] property interest in Part A coverage was fairly attributable to the Secretary and thus a product of ‘state action,’ a necessary element of a due process claim.” The court adds that Medicare patients who are admitted under observation status have “failed to prove a separate property interest in inpatient admission, because a physician’s admission decision is not governed by the sort of mandatory standards that can create a property interest under the law.”

For the full text of this decision, go to: https://www.medicareadvocacy.org/wp-content/uploads/2020/03/2020-03-24-Dkt.-439-Memorandum-of-Decision.pdf