In order to qualify for Medicare-covered skilled nursing facility (SNF) care, Medicare beneficiaries must be an inpatient of a hospital for at least three consecutive days, not including the day of discharge. Unfortunately, beneficiaries are too often either admitted to hospitals as outpatients on observation status or have their status changed to outpatient observation after being admitted as inpatients. Although beneficiaries on observation status often receive the same services as inpatients and may be in the hospital for more than three days, their classification precludes them from qualifying for Medicare-covered SNF care, regardless of their medical need for such services.
To inform beneficiaries about their admission status, hospitals are required to give patients the Medicare Outpatient Observation Notice (MOON). The notice tells beneficiaries about their observation status and the effects of this status on Medicare cost-sharing and SNF services. The notice must be given to beneficiaries who remain in observation status for more than 24 hours, and it must be provided within 36 hours of observation services being initiated. Hospitals must also orally explain observation status and its financial consequences to beneficiaries. However, unlike other Medicare notices, issuance of the MOON does not give patients appeal rights; patients have not been able to appeal their observation status to Medicare.
Since 2011, the Center for Medicare Advocacy has been pursuing a nationwide class-action lawsuit, Alexander v. Azar, to seek appeal rights for beneficiaries placed on observation status. On March 24, 2020, Judge Michael P. Shea of the U.S. District Court for the District of Connecticut held that beneficiaries whose status is changed from inpatient to observation by their hospital are deprived of their property interest in Medicare Part A coverage. Judge Shea found that the Secretary of the U.S. Department of Health and Humans Services violated “the Due Process Clause of the Fifth Amendment by denying the members of the modified class the right to challenge the denial of their Part A coverage.” The court ordered the Secretary to provide these beneficiaries timely notice of their procedural rights and to allow them to appeal for Medicare Part A coverage of their hospital stays. Details of how that will actually work are not yet known, as explained on the Center for Medicare Advocacy’s Frequently Asked Questions page.
The Alexander court limited its holding to beneficiaries who are changed from inpatient status to observation status in the hospital. In other words, the decision does not apply to beneficiaries who are in observation status for their entire hospitalization, or who are only changed from observation to inpatient status. This was based on Judge Shea’s view that only changes from inpatient to observation can be attributed to the application of government rules. Nevertheless, Judge Shea did leave open the possibility of extending appeal rights to a larger group of beneficiaries, determining that “[t]he Secretary may provide greater procedural protections than the ones described above, and may provide these protections to a broader class of beneficiaries, provided that the due process rights of the class members are fully protected as set forth above.”
While appeal rights for beneficiaries in observation status are critical and may provide relief for the beneficiaries included in the court’s decision, as long as observation status continues to block access to medically necessary SNF care, more policy advocacy is needed. We continue to ask Congress to pass the Improving Access to Medicare Coverage Act (H.R. 1682/S.753), which would count all time spent in the hospital for purposes of satisfying the three-day inpatient hospital stay requirement for SNF coverage.
Note: CMS is temporarily waiving the three-day inpatient hospital stay requirement for Medicare beneficiaries affected by the COVID-19 pandemic. For more information, please read our alert, “CMS Temporarily Waives Medicare Access Barriers for Skilled Nursing Facility Care.”