On July 31, 2017, the U.S. District Court for the District of Connecticut certified a nationwide class of Medicare beneficiaries who desire to challenge their placement on “observation status” during their hospital stays.  Alexander v. Price, No. 3:11-cv-1703 (D. Conn. July 31,2017).  

The plaintiffs in this long-running action argue that the decision to categorize Medicare beneficiaries as outpatients on observation status rather than inpatients should be subject to administrative review.  Currently, Medicare does not allow beneficiaries to appeal this determination.

Whether a patient is classified as on observation status as opposed to an inpatient has cost significance for Medicare purposes, first because those on observation status are covered under Part B of Medicare and are not reimbursed for out-of-pocket costs that would be paid under Part A if classified as inpatients.  Secondly, Medicare will pay for needed skilled nursing facility (SNF) care only after a 3-day hospital “inpatient” stay, but not for the same period of time as a patient “under observation.”