In Bagnall v. Sebelius, No. 3:11-CV-01703 (D. Conn.), a federal district court in Connecticut recently granted a motion to dismiss the complaint of fourteen Medicare beneficiaries seeking to invalidate an HHS policy allowing hospitalized patients to be placed on observation instead of formally admitting them to the hospital as inpatients.  According to the district court, each of the plaintiffs suffered serious financial consequences as a result of being placed in observation but not formally being admitted to the hospital as an inpatient.

If a Medicare beneficiary is admitted as an inpatient, inpatient services are covered under Medicare Part A.  In contrast, if the beneficiary is placed in observation, the services are covered and billed under Medicare Part B.  Under Part A, a beneficiary pays a one-time deductible for inpatient services furnished during the first 60 days spent in the hospital.  Under Part B, in contrast, a Medicare beneficiary must make a copayment for each outpatient hospital service, i.e., each APC  billed.  In addition, Medicare Part A coverage for up to 100 days of post-hospital SNF care is limited to those beneficiaries who have been hospitalized inpatients for at least three consecutive calendar days prior to discharge from the hospital.  Accordingly, a Medicare beneficiary may pay less for hospital services if they are covered under Part A, although that is not common, and without a 3-day inpatient hospital stay, there will be no coverage for SNF care.

The statutory provisions governing Part A do not define the term “inpatient.”  HHS’s Secretary has defined the term in the Medicare Benefit Policy Manual by reference to formal admission to the hospital as an inpatient.

The plaintiffs advanced several legal theories challenging the use of observation.  The district court ruled that the suit was largely foreclosed by the decision of the United States Court of Appeals for the Second Circuit in Estate of Landers v. Leavitt, 545 F.3d 98 (2d. Cir. 2008), in which the Second Circuit upheld the HHS Secretary’s decision to define “inpatient” status by reference to formal hospital admission.  Decisions of the Second Circuit are binding on federal district courts in Connecticut.  The Medicare beneficiaries are entitled to appeal the district court’s ruling.

You can review the district court’s order by clicking here.