Tuesday, March 11, 2014

AHCA Amicus Supports Medicare Beneficiaries in Observation Stay Litigation

Dianne De La Mare

On February 20, 2014, AHCA submitted an amicus brief to the U.S. Court of Appeals for the Second Circuit in Bagnall v Sebelius (a case challenging the HHS Secretary’s use of “observation status”), and offered its support to beneficiaries in a lawsuit brought by the Center for Medicare Advocacy (CMA) and the National Senior Citizens Law Center (NSCLC). By way of background, CMA and NSCLC filed the Bagnall v. Sebelius complaint in November 2011. This purported class action sought to halt the U.S. Department of Health and Human Services (HHS) Secretary’s use of observation status and to provide remedies to those already harmed by its application, alleging that the named plaintiffs and other similarly situated beneficiaries were deprived of Medicare Part A coverage by being improperly classified as outpatients, placed on observation status, rather than being formally admitted to the respective hospital. The complaint also specifically alleged that the use of observation status had negative consequences, including: 1) that beneficiaries may have to absorb significant hospital costs that otherwise would have been paid for under Medicare Part A, including co-payment obligations for drugs under Part B cost sharing; 2) that beneficiaries do not qualify for skilled nursing facility (“SNF”) coverage because the observation status does not count toward the three-day prior hospitalization requirement; and 3) shifting the cost of SNF care (subsequent to a dual-eligible’s greater than three-day stay in a hospital in observation status) from the federal government to the states.

In the underlying litigation, in September 2013, the U.S. District Court for the District of Connecticut granted the government’s motion to dismiss Bagnall. In dismissing the case, the U.S. District Court stated that the “plaintiffs cannot fully sidestep [Estate of Landers v Leavitt];” a case that held that until a patient is formally admitted to a hospital as an inpatient, the clock does not begin to run on Medicare’s three-day hospital stay requirement to qualify for SNF coverage. Subsequently, In October 2013, CMA and NSCLC filed a notice of appeal in the U.S. Court of Appeals for the Second Circuit on two specific issues: 1) The Secretary’s failure to provide written notification to Medicare beneficiaries, or to require that they receive written notification, of their placement on observation status, of the consequences of that placement for their Medicare coverage, and of their right to challenge that placement violates the Medicare statute and the Due Process Clause of the Fifth Amendment; and 2) The Secretary’s policy of not providing Medicare beneficiaries with the right to administrative review, including expedited review, of their placement on observation status violates the Medicare statute and the Due Process Clause of the Fifth Amendment. AHCA’s amicus brief supports the beneficiaries in Bagnall by stating that “plaintiffs in this litigation have a valid cause of action for injunctive relief to avoid the due process violations inherent in the HHS Secretary’s current approach,” and should be heard in court. We will continue to keep you apprised of this litigation as it unfolds.

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