CMS Proposes Appeals Process for Medicare Beneficiaries Switched from Inpatients to “Observation Status”
- January 12, 2024
The Centers for Medicare & Medicaid Services (CMS) published December 27, 2023 a proposed rule (88 Fed. Reg. 89506) that would implement a court-ordered administrative appeals process for Medicare beneficiaries who are reclassified from hospital inpatients to outpatients receiving “observation services.”
The proposed rule would establish an expedited appeals process for beneficiaries to challenge a hospital’s decision to reclassify their status prior to discharge; a standard appeals process without expedited timeframes; and a retrospective appeals process for denials of Part A coverage of hospital services, and certain Skilled Nursing Facility (SNF) services, for status changes that occurred prior to the implementation of the prospective appeals process, dating back to January 1, 2009.
The proposal follows long-running litigation that was brought in 2011 by a class of Medicare beneficiary plaintiffs who were initially admitted to hospitals as inpatients, which is covered under Part A, and later reclassified as inpatients receiving observation services, which is covered under Part B.
The distinction has significant financial implications because Part B beneficiaries who receive observation services in a hospital have a 20% copayment and are also responsible for the cost of self-administered medications. In addition, Medicare only covers post-hospitalization skilled nursing care after a three-day inpatient hospital stay.
The Medicare statute requires hospitals to implement a “utilization review committee” (URC) to ensure admissions are medically necessary and meet Centers for Medicare & Medicaid Services (CMS) criteria for reimbursement. Currently, patients have no way to challenge reclassifications by the URC from inpatient to someone receiving observation services.
In March 2020, the U.S. District Court for the District of Connecticut ruled that the Department of Health and Human Services violated due process by failing to provide an appeals mechanism for Medicare beneficiaries whose inpatient admissions are changed to observation status by a hospital’s URC. The district court issued an injunction ordering the Secretary to create a process for members of the class to appeal their reclassification decisions. The Second Circuit affirmed. Alexander v. Azar, 613 F. Supp. 3d 559 (D. Conn. 2020), aff’d sub nom., Barrows v. Becerra, 24 F.4th 116 (2d Cir. 2022).
Comments on the proposed rule are due February 26.