Class-Action Lawsuit Seeks To Let Medicare Patients Appeal Gap in Nursing Home Coverage

Yves here. This article illustrates why healthcare in the US is such a mess and why it is going to be necessary to blow huge sections of how we do things now up to get to a somewhat sane and more affordable system. And remember, we are talking about Medicare, the part that supposedly works well. I am actually dreading getting on Medicare due to its complexity, as in the need to supplement it with private insurance.

This article describes a category that looks like it was created just to allow for rent extraction: “observational care”. That means the doctor thinks you are too ill to be allowed to go home, as in you need to stay in a hospital or something awfully hospital-like, but you aren’t an admitted patient. And if you scroll to the end of the article, the government doesn’t provide any guidance as to what makes an overnight stay “observational care” versus being an inpatient. This distinction matters not only in terms of how much the patient has to pay (surprise, more for observational care) but also for qualifying for nursing home care (patients are eligible for Medicare reimbursement only if they have spent three nights in a row as an inpatient).

And currently, patients can’t appeal decisions related to observational care.

By Susan Jaffee of Kaiser Health News. Originally published at Kaiser Health News

Medicare paid for Betty Gordon’s knee replacement surgery in March, but the 72-year-old former high school teacher needed a nursing home stay and care at home to recover.

Yet Medicare wouldn’t pay for that. So Gordon is stuck with a $7,000 bill she can’t afford — and, as if that were not bad enough, she can’t appeal.

The reasons Medicare won’t pay have frustrated the Rhode Island woman and many others trapped in the maze of regulations surrounding something called “observation care.”

Patients, like Gordon, receive observation care in the hospital when their doctors think they are too sick to go home but not sick enough to be admitted. They stay overnight or longer, usually in regular hospital rooms, getting some of the same services and treatment (often for the same problems) as an admitted patient — intravenous fluids, medications and other treatment, diagnostic tests and round-the-clock care they can get only in a hospital.

But observation care is considered an outpatient service under Medicare rules, like a doctor’s appointment or a lab test. Observation patients may have to pay a larger share of the hospital bill than if they were officially admitted to the hospital. Plus, they have to pick up the tab for any nursing home care.

Medicare’s nursing home benefit is available only to those admitted to the hospital for three consecutive days. Gordon spent three days in the hospital after her surgery, but because she was getting observation care, that time didn’t count.

There’s another twist: Patients might want to file an appeal, as they can with many other Medicare decisions. But that is not allowed if the dispute involves observation care.

Monday, a trial begins in federal court in Hartford, Conn., where patients who were denied Medicare’s nursing home benefit are hoping to force the government to eliminate that exception. A victory would clear the way for appeals from hundreds of thousands of people.

The class-action lawsuit was filed in 2011 by seven Medicare observation patients and their families against the Department of Health and Human Services. Seven more plaintiffs later joined the case.

“This is about whether the government can take away health care coverage you may be entitled to and leave you no opportunity to fight for it,” said Alice Bers, litigation director at the Center for Medicare Advocacy, one of the groups representing the plaintiffs.

If they win, people with traditional Medicare who received observation care services for three days or longer since Jan. 1, 2009, could file appeals seeking reimbursement for bills Medicare would have paid had they been admitted to the hospital. More than 1.3 million observation claims meet these criteria for the 10-year period through 2017, according to the most recently available government data.

Gordon is not a plaintiff in the case, but she said the rules forced her to borrow money to pay for the care. “It doesn’t seem fair that after paying for Medicare all these years, you’re told you’re not going to be covered now for nursing home care,” Gordon said.

No one has explained to Gordon, who has hypoglycemia and an immune disease, why she wasn’t admitted. The federal notice hospitals are required to give Medicare observation patients didn’t provide answers.

Even Seema Verma, the head of the Centers for Medicare & Medicaid Services, is puzzled by the policy. “Better be admitted for at least 3 days in the hospital first if you want the nursing home paid for,” she said in a tweet Aug. 4. “Govt doesn’t always make sense. We’re listening to feedback.” Her office declined to provide further explanation.

Patients and their families can try to persuade the physician or hospital administrators to change their status, and sometimes that strategy works. If not, they can leave the hospital to avoid the extra expenses, even if doing so is against medical advice.

The requirement of three consecutive days as a hospital inpatient to qualify for nursing home coverage is written into the Medicare law. But there are exemptions. Medicare officials don’t apply it to beneficiaries in some pilot programs and allow private Medicare Advantage insurers to waive it for their patients.

Concerned about the growing number of people affected by observation care, Medicare officials created a “two-midnight” rule in 2013. If a doctor expects a patient will be sick enough to stay in the hospital through two midnights, then it says the patient should generally be admitted as an inpatient.

Yet observation claims have increased by about 70% since 2008, to more than 2 million in 2017. Claims for observation care patients who stay in the hospital for longer than 48 hours — who likely would qualify for nursing home coverage had they been admitted —rose by nearly 159%, according to data Kaiser Health News obtained from CMS. Yet the overall growth in traditional Medicare enrollment was just under 9%.

Justice Department lawyers handling the case declined to be interviewed, but in court filings they argue that the lawsuit accuses the wrong culprit.

The government can’t be blamed, the lawyers said, because the “two-midnight” rule gives hospitals and doctors — not the government — the final word on whether a patient should be admitted.

The government’s lawyers argue that since Medicare “has not established any fixed or objective criteria for inpatient admission,” any decision to admit a patient is not “fairly traceable” to the government.

Like Gordon, some doctors also complain about observation care rules. An American Medical Association spokesman, who spoke on condition of not being named, said the “two-midnight” policy “is challenging and illogical” and should be rescinded. “CMS should instead rely on physicians’ clinical judgment to determine a patient’s inpatient or outpatient status,” he added.

HHS’ Office of Inspector General urged CMS to count observation care days toward the three-day minimum needed for nursing home coverage. It’s No. 1 on a list issued last month of the 25 most important inspector general’s recommendations the agency has failed to implement.

The Medicare Payment Advisory Commission, which counsels Congress, has made a similar suggestion.

However, Colin Milligan, a spokesman for the American Hospital Association, is more positive about the “two-midnight” rule. It “recognizes the important role of physician judgment,” he said.

Medicare isn’t dictating what physicians must do, said a physician who has researched the effects of observation care. “It’s a benchmark upon which to base your decisions, not a standard or a mandate,” said Dr. Michael Ross, a professor of emergency medicine at Emory University School of Medicine in Atlanta. He supervises observation care units at Emory’s five hospitals and was chairman of a CMS advisory subcommittee on observation care.

Other physicians claim that since HHS pays hospitals and doctors to treat Medicare patients, the agency’s policies weigh on their decisions.

“One of the hardest things to do is to get physicians to predict what will happen with patients — we like to hedge our bets and account for all possibilities,” said Dr. Tipu Puri, a physician adviser and medical director at the University of Chicago’s medical center. “But we’re being forced to interpret the rules and read between the lines.”

In the meantime, observation care patients who get follow-up care at a nursing home may soon receive a puzzling notice. A Medicare fact sheetissued last month “strongly encourages” nursing home operators to give an “advance beneficiary notice of non-coverage” to patients who arrive without the required prior three-day hospital admission.

But that notice says they can choose to seek reimbursement by submitting an appeal to Medicare — an option government lawyers will argue in court is impossible.

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  1. flora

    I think a lot of the increase in ‘observation but not admitted’ has to do with the 2010 health care reform legislation. It intended to reduce Medicare costs by reducing re-admissions to hospitals – using the stick of lower reimbursement rates to hospitals deemed to have a ‘high re-admission’ number (however that might be calculated by bureaucrats in their one-size-fits-all model).

    If one isn’t ‘admitted’ in the first place, then a return within 30 days isn’t a re-admission. This is a hospital vs Medicare reimbursment rates bureaucratic game, imo, and patients wind up paying. Medicare costs go down because the financial burden is shifted to patients. The admission status is the lever.

    From 2010:
    Reductions in hospital readmissions (also referred to as rehospitalizations) have been identified by Congress and President Obama as a source for reducing Medicare spending.

    Although readmitting a patient to a hospital may be appropriate in some cases, some policy makers and researchers agree that reducing readmission rates could help contain Medicare costs and improve the quality of patient care.

    Here’s the kicker:

    The legislation contains a number of provisions that make changes to Medicare. Among these are provisions intended to reduce preventable hospital readmissions by reducing Medicare payments to certain hospitals with relatively high preventable readmissions rates.

    Let’s say the legislation was well intended – better patient care and outcomes – but badly implemented.

    So, if you use Medicare and you go to the hospital and are ‘admitted’, and then for whatever reason you have to be ”readmitted’ within a certain number of days, the hospital’s Medicare re-admittance numbers and their reimbursment rates may take a hit.

    But, if you go to the hospital and are not ‘admitted’, then the hospital’s readmitted numbers and reimbursement rates do not take a hit.

    Medicare can say, “Our policy is improving care. We know that because readmissions are down.” The hospitals can say, “We manage our business very well. We know that because our Medicare reimbursement rates are top tier and we aren’t on Medicare’s ‘bad care provider’ list.”

    The patient is left to pick up the tab for all this nonsense.

    Isn’t that lovely?

    1. Carla

      Flora, thank you for this explanation of “observation care” and the reasons for it. It’s the first one I’ve seen that makes sense — a horrid, neoliberal kind of sense, but at least I can comprehend the ins-and-outs of it.

    2. Carolinian

      So could one go further and say observation status is something hospitals invented simply to get around Medicare rules? To those who prefer to keep things logical being in a hospital room overnight is by definition “inpatient.”

  2. Grayce

    If you have Medicare, you can “supplement it with private insurance.”
    In the 1980s, Medicare was the complement to employer-sponsored healthcare after sixty-five for all those workers who retired with lifetime health benefits. Yes, vested health was common as part of “total compensation” and the sponsor could forecast full premiums that would be dropped as the retiree reached Medicare eligibility. Many plans had it written into their rules that a future reimbursement would be reduced by the amount Medicare would have paid, whether or not the retiree enrolled in Medicare.
    Without changing the stated benefits, plans now include extra terms and conditions, like deductibles on coverage such as x-ray and emergency, that did not originally require it.
    Medicare administrators seem to be catching the finance fever where it appears they are delivering the same care, but cutting costs. The problem is, the cost-cutting is subtle and erodes the actual care-giving benefit. The invention of “observation” is almost a trick, and where it removes eligibility for nursing home care, it is almost unethical. Hippocrates is rolling in his grave.
    Good luck to the plaintiffs. If there is still justice possible in the war of arguing the Oxford comma, this case should find it.

    1. flora

      Thanks for this information.
      Interesting, to me, that the “reforms” in Medicare, like the “reforms” in education with the No Child Left Behind act and the “reforms” in bankruptcy law , seem designed to reduce govt support for / increase costs to the little guy while protecting the big guys. The “observation status” is quite a loophole protecting hospitals from Medicare reduced reimbursements.

  3. kris alman

    Flora is spot on. And shame on Kaiser Health News for not pointing that out!

    This from the Center for Medicare Advocacy:

    As required by the Affordable Care Act, the Medicare Hospital Readmissions Reduction Program (HRRP) reduces Medicare payment rates, by up to 3%, to hospitals that readmit patients with certain specified conditions within 30 days. A review of patient-level claims data, 2007-2015, for 350 commercial payers finds that apparent reductions in hospital readmissions are offset by hospitals’ increased use of observation status.

    Observation status shifts everything to Medicare Part B billing. That means that if you are in the hospital, you are also responsible for any meds or treatments that you would normally take as an outpatient (say insulin if you are a diabetic) if you are admitted for a hip fracture. That said, I cannot imagine hospitals having a BYO meds policy. So this means that everything is billed at higher overall out-of-pocket costs (20% cost-sharing) through Medicare Part B, rather than Part A, hospital benefits.

    Why is this happening? Part A has a deductible of $1364 for each benefit period, which lasts 60 days after the patient is discharged from a hospital or skilled nursing facility covered by Medicare. There can be multiple admissions in that benefit period, which could extend the benefit period throughout the entire year with frequent re-admissions. By having observation status billing, it means Medicare beneficiaries will have more benefit periods in a given calendar year, with the respective Part A deductible applied multiple times.

    There is something called the “Moon” (Medicare Outpatient Observation Notice) notice which must be given no later than 38 hours after a patient is put on observation status. Not signing it doesn’t mean that you can refuse that designation and have the care count as inpatient care.

    1. flora

      Thanks for this information.
      I remember when the ACA passed; several people who followed the bill said it was going to be ‘paid for’ by cuts to Medicare. I wonder if this is what they meant.

  4. kris alman

    I am in the process of training to be an advisor for Senior Health Insurance Benefits Assistance (SHIBA) in my home state. With different acronyms for this service (woefully underfunded by the federal government), we are especially busy during open enrollment in the fall, when every senior should re-evaluate their Medicare benefits. And of course we are always available for the newbies signing on to Medicare when they first qualify. But we also trouble shoot complaints that can run up the CMS pipeline regarding fraud, waste and abuse.

    Next week I am going to listen to this SHIP (State Health Insurance Assistance Programs) webinar: long-term care insurance training webcast with Bonnie Burns.

    Hmmm… the answer to all our high priced health care. Privatize the problem.

    As a retired physician who has a few years to go before we jump into the Medicare pool, I am angered by this complexity.

    (And if this comment is moderated also, like my response to Flora (who is spot on), I will be very bummed.)

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