In March 2020, a federal court issued a decision in a nationwide class action, Alexander v. Azar, finding that certain Medicare beneficiaries who are admitted as hospital inpatients, but then reclassified as outpatients receiving observation services (also known as “observation status”), have the right to appeal to Medicare for coverage as hospital inpatients. A federal appeals court affirmed the decision in January 2022.
Medicare released the final regulations implementing the court’s decision in October 2024.
Below are some answers to frequently asked questions about the decision. We also recommend signing up for our Alerts to receive news about significant developments as the decision is implemented, and about observation status in general.
Click on any question below for more information.
Inpatients are covered by Medicare Part A. Patients must be hospitalized for at least three consecutive days (not including the day of discharge) as inpatients, covered by Medicare Part A, to be eligible for a Medicare-covered stay in a “skilled nursing facility” (nursing home) after a hospitalization.
People who are in observation status at hospitals are covered by Medicare Part B, which covers outpatient services. Any time spent in observation status does not count toward the three-day hospitalization that is required for coverage of nursing home care. Thus the right to appeal for coverage as an inpatient under Medicare Part A may be important, especially if you require costly nursing home care after your hospitalization. It may also be important if you were not enrolled in Medicare Part B and were thus responsible for the entire cost of your observation status hospital stay.
The court ordered Medicare to establish processes for two types of appeals.
Retrospective appeals are for class members who did not have an appeal process available at the time they were in the hospital or nursing home. Retrospective appeals cover hospitalizations that occurred from January 1, 2009 – February 13, 2025 (we are still confirming the end date, but for now we believe it is February 13, 2025). People who succeed in these appeals may be able to obtain refunds of out-of-pocket payments they made to nursing homes. People who lacked Medicare Part B may be able to obtain refunds for out-of-pocket payments they made to hospitals.
Prospective appeals are for people who are in the hospital and wish to appeal their reclassification from inpatient to observation. They may be able to qualify for a Medicare-covered nursing home stay at a meaningful time if they win. This type of appeal will be available permanently starting February 14, 2025.
To be eligible for a retrospective appeal, covering hospitalizations from January 1, 2009 – February 13, 2025, you must have:
1. Been hospitalized since January 1, 2009; and,
2. been a Medicare beneficiary with original/traditional Medicare during the hospitalization in question (not in a Medicare Advantage plan); and,
3. been admitted as an inpatient but then changed to an outpatient receiving observation services during the hospitalization; and,
4. received a “MOON” (Medicare Outpatient Observation Notice) from the hospital, and/or, a Medicare Summary Notice from Medicare, indicating that you received hospital services that were not covered by Medicare Part A; and,
5.
EITHER:
You stayed in the hospital at least 3 days, but were an inpatient fewer than three days, AND you were admitted to a nursing home within 30 days of hospital discharge.
OR
You had Medicare Part A only (no Part B) at the time of the hospitalization.
It also must be the first time you’re appealing for Medicare to cover services related to this hospital stay, or if you did appeal, you received a decision after September 4, 2011.
Note that it may be necessary to request and examine your hospital records to determine whether a doctor admitted you as an inpatient and whether you were changed to an outpatient receiving observation services.
Note that people who were in observation status for the entirety of their hospital stay, or who were only changed from observation to inpatient status, are not eligible to appeal.
Your decision about whether to appeal will depend on your individual situation. For example, if you paid for nursing home care out of pocket because you were in the hospital for at least three days, but you were changed to observation status so that you were not an inpatient for three days, you may wish to submit a retrospective appeal. In the appeal, you would claim that your hospitalization met Medicare’s criteria for inpatient admission. If you win on that issue and also meet all other requirements for coverage of nursing home care, Medicare should cover that nursing home care, and you may be eligible for a refund from the nursing home for bills you paid out of pocket, minus any coinsurance amounts.
Another example would be if you had Medicare Part A but not Part B during your hospitalization. You may have been responsible for a large hospital bill because observation services are only covered by Medicare Part B. In that case, you may want to submit a retrospective appeal to show that your hospitalization should have been covered by Medicare Part A as an inpatient stay. If you win that appeal, Medicare should cover the inpatient hospitalization, and you may be eligible for a refund from the hospital for amounts you paid out of pocket, minus any deductible or coinsurance amounts.
Submit a request to the Eligibility Contractor using the form Medicare has created for this purpose, available here: Request Form for Retrospective Appeal of Medicare Part A Coverage. The form can also be obtained by calling 1-800-MEDICARE.
Instructions for mailing or faxing the form are on the third page of the form and also in instructions posted by the Centers for Medicare & Medicaid Services (CMS). If you do not want to use the form, instructions on what information to include are available on the CMS webpage.
Besides basic required information such as you name and Medicare number, address, phone number, it will be helpful to include complete medical records from the hospital and the nursing home, Medicare Summary Notices (MSNs) listing the hospital and nursing home stay (MSNs are received by mail; they can also be retrieved online), MOON (if you received one from the hospital), and proof of payment of out-of-pocket costs. Send in as much as you can and try to be as complete as possible. You will have opportunities to supplement information later. The Eligibility Contractor must also help obtain required medical records.
You may also include a written statement or statements about why your inpatient admission was correct. Admissions occurring on or after October 1, 2013 are assessed using the Two Midnight Rule: was there a reasonable expectation at the time of the doctor’s inpatient admission order that you needed medically necessary hospital care crossing at least two midnights? Factors considered can include medical history, medical needs, severity of signs and symptoms, medical predictability of an adverse event. Hospitalizations that occurred before October 2013 used a similar but slightly different standard: was there a reasonable expectation at the time of the doctor’s inpatient admission order that you needed medically necessary hospital care for at least 24 hours?
If you are requesting coverage of your nursing home stay, you will also need to show that your nursing home services met Medicare’s coverage requirements. This means in addition to having the 3-day inpatient hospital stay and meeting certain other criteria, you received skilled care, such as physical or occupational therapy, or skilled nursing, on a daily basis, as defined by Medicare. In your retrospective appeal submission, you can also explain why your nursing home services met Medicare’s coverage requirements. There are certain limitations on nursing home coverage, such as a time limit of up to 100 days per “benefit period.” More information on Medicare coverage of nursing home services is available here.
It will be helpful to request and submit comprehensive hospital records, including documentation of your admission as an inpatient, orders for observation services, diagnosis and treatment notes, and discharge notes and summaries. You may have to specifically request records of patient status orders and follow up with the hospital if you do not receive them on the first try. If you are requesting coverage of nursing home services, you should also request and submit complete nursing home records showing the care your received, and information on out-of-pocket payments (bills, cashed checks, credit card statements, etc.). If you lacked Part B, you should also request and gather and records of out-of-pocket costs you paid to the hospital, including bills, cashed checks, or credit card statements.
Note that payments made by individuals on your behalf, such as payments by your family and friends, count as out-of-pocket costs, even if they did not have a legal obligation to pay your bills.
Hospitals and nursing homes may charge reasonable fees for copies of medical records, though some states have laws that prohibit fees in some circumstances. Information on requesting medical records is available on the following website: https://triagecancer.org/state-laws/medical-records.
The request for a retrospective appeal should be submitted after January 1, 2025, and must be received by January 2, 2026. If you have “good cause” for filing later, appeals may be accepted after January 2, 2026. Good cause can include reasons such as your own serious illness, a death or serious illness in your immediate family, and physical, mental, educational, or other limitations (including limited proficiency in English) that delayed or prevented you from filing your request on time. It may also include delays because you had to get help from an outside resource like a senior center or your State Health Insurance Assistance Program (SHIP). This is the same good cause standard used for other Medicare appeals.
The Eligibility Contractor will decide only if you are eligible to appeal. If it decides that you are not eligible, you can request one more review by the Eligibility Contractor, during which additional information can be submitted. If the Eligibility Contractor decides again that you are not eligible, the appeals process stops.
If the Eligibility Contractor decides you are eligible to appeal, it will automatically forward your case to the appropriate Medicare Appeals Contractor, which will decide the substantive question of whether the inpatient admission was correct, and whether your nursing home services should thus be covered, or, if you lacked Part B, whether your hospital services should be covered. The case will then move through Medicare’s appeal system in the same way other appeals do.
This flowchart shows the process.
If you win your appeal, Medicare should cover your eligible nursing home services. If you had no Part B and you win your appeal, your eligible hospital services should be covered. Providers may owe you a refund for amounts that you paid out of pocket, minus any deductibles or coinsurance amounts.
Most existing Medicare rules about appointed representatives and authorized representatives apply. You can appoint a trusted friend or family member, caregiver, advocate, lawyer, or someone else, as a representative. This can be done using the Appointment of Representative form. (Tip: submit a copy of the form with each request and each level of appeal.) Some people are already authorized to act for you, such as a representative payee, someone with power of attorney, or a legal guardian. Include copies of documents showing your authority.)
If a beneficiary has died, a person who is authorized to act for the deceased under state law may request an appeal. They should include proof of their authority, such as proof of being appointed executor of the estate, or information on the state law authorizing them to handle affairs for the deceased beneficiary, if there is no estate.
Unlike other Medicare appeals, the hospital or nursing home cannot represent the patient or be a party to the appeal. However, they can help patients navigate the process, provide information, documents, etc.
Beneficiaries can also seek information and help from 1-800-MEDICARE, or from their local State Health Insurance Assistance Program (SHIP) program, which provides free Medicare counseling. Some SHIP programs assist with appeals. Some legal aid programs provide assistance with Medicare appeals; eligibility criteria may apply.
A person enrolled in traditional Medicare (not Medicare Advantage) who is admitted as an inpatient, but then reclassified as an “outpatient receiving observation services,” AND
EITHER
Spends at least three consecutive days in the hospital (not counting the day of discharge), but was an inpatient for fewer than three days;
OR
Is not enrolled in Medicare Part B during the hospitalization.
Hospitals must deliver a Medicare Change of Status Notice (MCSN) to patients who are eligible to submit a prospective appeal. The notice explains how the change in status can affect their hospital bill, and that Medicare will not pay for a nursing home stay after the hospitalization. The notice also explains how to appeal to the QIO (appeal contractor) about the status change, and what to expect.
An expedited (fast) appeal is started by calling the QIO whose phone number is listed on the notice before leaving the hospital. The QIO must examine the medical records, ask for views of the beneficiary (or their representative) and the hospital, and issue a decision within one calendar day of receiving all requested pertinent information.
Patients who are denied at the first level can request an expedited reconsideration from the QIO by contacting the QIO before noon of the day following their initial notification of the QIO’s decision. The QIO must then offer the patient and the hospital an opportunity to provide further information, and issue a reconsideration decision within 2 calendar days of receiving all requested pertinent information.
If you win your appeal, the reclassification to observation should be disregarded and you should have a three-day inpatient hospital stay that makes you eligible for a Medicare-covered nursing home stay.
Note than any appeals beyond the first two levels are not expedited but occur on the standard Medicare appeal timeframe.
If you do not meet the deadline to submit an expedited appeal before you leave the hospital, you can still contact the QIO to pursue an appeal at any time. This could be after you leave the hospital, while you are in a nursing home, or after you have left a nursing home. If you win coverage, you may be eligible to receive refunds for out-of-pocket costs.
See answer to Question 9 above. Also note that if you or your representative request it, the hospital must furnish a copy of or access to any documentation it has sent to the QIO, including written records of information provided by phone. It may charge reasonable fees to cover copy and delivery costs.
Doctor’s order: the hospital must formally admit the patient after a doctor orders inpatient care to treat the patient.
Two Midnight Rule: Did the doctor have a reasonable expectation at the time of admission that the patient would need medically necessary hospital care crossing at least two midnights? Factors considered can include the patient’s medical history, medical needs, severity of signs and symptoms, medical predictability of an adverse event, need for and availability of diagnostic studies that are appropriately outpatient services.
NOTE: QIOs “do not take into account other information (e.g. test results) which become available only after admission, except in cases where considering the post-admission information would support a finding that an admission was medically necessary.” Medicare Benefit Policy Manual, Ch. 1 § 10.
This FAQ is for informational and educational purposes only and is not intended as legal advice.