Medicare patients sue over observation policy

NEWS IN BRIEF — Posted Nov. 14, 2011

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Patient advocacy groups have filed a class-action lawsuit against the Medicare program on behalf of seven beneficiaries who received inpatient hospital services but were billed as outpatients.

The Nov. 3 lawsuit against the Dept. of Health and Human Services claims that Medicare patients have been harmed by the misapplication of the observation status policy, according to the complaint filed by the Center for Medicare Advocacy and the National Senior Citizen Law Center. Patients in observation are not covered under Medicare Part A. During certain circumstances, these patients also may not be eligible for subsequent skilled nursing care coverage. The discrepancy often leads to patients and their families being unaware that they will be held responsible for the costly care.

"We've turned to the courts for fairness because observation status harms thousands of Americans receiving Medicare each year, nationwide," said Judith Stein, founder and executive director of the advocacy center. "It causes severe financial problems for beneficiaries and their families, and deprives them of nursing home coverage altogether."

The lawsuit asks the court to rule that the current application of observation status violates Medicare statute.

HHS does not comment on pending litigation. The department has 60 days to answer the complaint, according to documents filed in a federal court in Connecticut. The case is Bagnall v. Sebelius.

The American Medical Association supports legislation that would count a patient's time spent in the hospital under observation toward the three-day hospital stay minimum for skilled nursing care coverage.

Note: This item originally appeared at

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