Observation stay challenge heads to court

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Government lawyers and opponents of Medicare's “observation stay loophole” squared off in court on Friday, when a federal judge convened the first hearing in the Bagnall vs. Sebelius case.

Richard Bagnall and other seniors denied Medicare coverage for skilled nursing care brought the case in 2011. They are contesting the practice of putting hospital patients in “observation status,” which means people can spend more than three days in the hospital but still not be considered inpatients. This prevents them from getting Medicare coverage of post-acute care. 

The plaintiffs are asking the judge to eliminate observation status, or to at least require written notification when a patient is placed on observation. Currently, hospitals are not required to tell patients their status.

Government lawyers are asking the judge to dismiss the case, saying the plaintiffs did not go through the entire Medicare appeals process before filing suit. The Center for Medicare Advocacy, which is representing 14 of the plaintiffs, countered that the appeals system is so ineffective that it violates due process protections.

“The judge did not tip his hand,” Toby Edelman, senior policy attorney for the Center for Medicare Advocacy, told McKnight's.  “He definitely was prepared and understood the case, and asked hard questions of both sides, but we don't know what he'll do.”

The judge took over the case in January and has moved it along quickly, Edelman said, but she does not know when he will reach a decision.

A recent Medicare payment update proposed some changes to observation stays, such as requiring that hospitals admit many people as inpatients after two days. However, critics point out the proposal does not address the real issue, which is the three-day minimum inpatient stay to qualify for follow-up nursing care coverage.

Congress is currently considering bills to eliminate the observation stay requirement. The American Health Care Association recently called on providers to submit stories about the loophole, to bolster efforts to eliminate it.