A judge bangs his gavel
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A court ruling has cleared the way for thousands of Medicare beneficiaries to appeal non-coverage of nursing home care after hospital stays.

At issue is hospitals’ widespread use of “observation” status for patients receiving services. Unlike admitted patients, those on observation are typically denied coverage of skilled nursing services because they did not have a required three-day, in-patient stay. 

A judge in 2019 ruled that Medicare beneficiaries should have the right to appeal the classification of observation stays and resulting coverage determinations. On Tuesday, the U.S. Court of Appeals for the 2nd Circuit upheld that decision.

In its ruling, a panel of three judges noted observation-stay sway over the right to post-acute care has led to “emotional and psychological costs, beyond the financial costs, for a patient who is denied Medicare Part A coverage.”

The panel agreed with a lower federal court that found patients erroneously denied coverage after hospitalizations might be forced to choose lower-quality medical care “or even forgo it altogether.”

Boon for nursing homes?

Tuesday’s ruling comes after at least 11 years of back and forth. It could put to rest an important issue for nursing home providers. They have long claimed they lose potential patients if the Centers for Medicare & Medicaid Services encourages hospitals to code patients for in-patient stays of less than three days.

The three-day, in-patient standard is currently being waived in many cases as part of temporary changes meant to make healthcare more accessible during the COVID-19 public health emergency. A bill filed in Congress last spring aims to make permanent nursing home coverage for patients on whose three-day stay includes some time on observation status.

Aging services organizations and researchers have supported a permanent waiver of the three-day rule, while the Medicare Payment Advisory Commission has supported allowing up to two outpatient observation days to count toward a three-day stay.

Consumers praise ‘fairness’

The Center for Medicare Advocacy was one of two senior advocacy groups that brought the class action suit against the Department of Health and Human Services. On Wednesday, leaders there praised the Circuit Court’s decision.

“The court recognized that this case is about fundamental fairness,” Alice Bers, CMA’s  litigation director, said in a statement. “Many older adults and people with disabilities will now have the opportunity to appeal to Medicare for inpatient coverage of their hospital and nursing home services — coverage that can make the difference between getting critical healthcare and going without.”

The court ordered HHS to set up an appeals process through which patients could challenge decisions by hospital utilization review committees to label their stays as for observation only. It will be available to current patients.

HHS must also devise an expedited process for beneficiaries who previously were turned down for coverage despite having spent three days in the hospital with at least part of that on observation status.

Luke Liss, an attorney with Wilson Sonsini, which took the case pro bono, said he hoped HHS would not further fight the decision “given the stakes for often very vulnerable patients who do not have time on their side.”

CMA said the class is estimated to contain hundreds of thousands of beneficiaries with claims dating as far back as 2009.