Appeals court keeps observation stay case alive, questions the role of doctors

Medicare beneficiaries can continue to press their case that hospitals' observation stay practices are violating patient rights, a federal appeals court ruled Thursday.

A U.S. District Court in Connecticut was wrong in dismissing the entire case in 2013, according to the Second Circuit Court of Appeals. The federal court revived certain Due Process claims, and remanded this part of the case back to the District Court.

The case stems from Medicare beneficiaries who were kept in observation status at the hospital even though they allegedly received inpatient-type care. Because they were not classified as inpatients, they did not qualify for Medicare coverage of post-hospital skilled nursing care, costing them thousands of dollars. The District Court ruled that the plaintiffs did not have a so-called “property interest” in bringing charges, based on the fact that physicians rightfully exercise their medical judgment in designating someone as an inpatient versus under observation.

However, the plaintiffs contend that hospitals are placing people under observation because of government policies and pressures, not due to medical judgments. Namely, the Centers for Medicare & Medicaid Services has created “commercial screening guides” defining how patients should be classified. Also, the actions of government contractors such as Medicare auditors influence how patients are categorized, the complaint states.

These claims are “plausible,” and further discovery is needed to establish whether the claims in fact establish the needed “property interest” for moving the case forward, the Court of Appeals ruled.