“Observation Status” Policy Moving Through Court System

Posted on: 11/28/2017

The hospital administration policy fight over “Observation Status” versus “Inpatient Status” may finally hit a boiling point this year. In July, the United States District Court of Connecticut ruled in favor of Medicare beneficiaries seeking administrative review of their “observation status.” In Alexander v. Price, 3:11-CV-1703, U.S. District Court Judge Michael Shea certified a class of individuals who are now eligible to sue the U.S. Department of Health and Human Services for the right to challenge the arbitrary label. Those eligible to join the suit against the Department are all Medicare beneficiaries who, on or after January 1, 2009: (1) have received or will have received “observation services” as an outpatient during a hospitalization; and (2) have received or will have received an initial determination that the observation services are covered (or subject to coverage) under Medicare Part B are eligible to join the class-action suit.

According to documentation filed in the case, the number of class members may well reach into the hundreds of thousands. The court cited a Brown University study originally published in 2012 that identified over 900,000 Medicare beneficiaries who experienced “observation status” hospital stays in 2009. The plaintiffs in the case argued that classification under “observation status” rather than “inpatient status” results in higher out-of-pocket costs during and after hospital stays. During the hospital stay, patients under “observation status” face higher costs for drugs and copayments for hospital services. After the hospital stay, patients could face astronomical expenses for skilled nursing facility care.

Click here to read the court decision.

Click here to visit the Center for Medicare Advocacy, the lead organization in representing the plaintiffs.

Return to Legislative Postings