On February 8, 2017, the United States District Court for the District of Connecticut declined to fully dismiss allegations filed by a class of Medicare patients against HHS in Alexander et al. v. Cochran (formerly Bagnall et al. v. Sebelius). Specifically, the Court found that the complaint plausibly alleged that HHS encouraged hospitals to place patients in observation status rather than admitting them as inpatients, thus causing the patients to ultimately pay more for their care without providing an avenue for the patients to appeal that decision.
This class action was originally filed in November 2011 against HHS, claiming violations of the Medicare Act, the Administrative Procedure Act, the Freedom of Information Act, and the Due Process Clause of the U.S. Constitution. The plaintiffs alleged that CMS pressured hospitals to treat patients in observation where they would remain as outpatients rather than admit them and provide treatment as inpatients. Plaintiffs also argued that HHS failed to provide sufficient notice to beneficiaries of their status as outpatients receiving observation services, and that HHS failed to provide sufficient appeal and administrative review processes.
Specifically, plaintiffs allege that CMS directs providers to apply commercially available screening tools which substitute for the medical judgment of treating physicians. Further, plaintiffs allege that CMS exerts pressure on hospitals through billing policies and through Recovery Audit Contractor reviews, incentivizing hospitals – as a cost-savings or compliance measure – to place more beneficiaries in observation status for longer periods of times. The plaintiffs further argue that certain services provided to patients as observation services are identical to those provided to inpatients, but the observation services ultimately require patients to pay more for their care, so the plaintiffs lost thousands of dollars in coverage.
As previously reported here, the case was initially dismissed with the District Court relying on the finding that HHS leaves the classification of patient status to the discretion of doctors and hospitals by tying it to their determination as to whether formally to admit a beneficiary. However, in January 2015, the United States Court of Appeals for the Second Circuit allowed the case to proceed, stating plaintiffs had alleged a property interest sufficient to state a due process claim. The court explained that if plaintiffs were able to prove their allegations that CMS channels the discretion of doctors to admit patients as outpatients, then plaintiffs could arguably show that qualifying Medicare beneficiaries have a property interest in being treated as inpatients that is protected by the due process clause. The case was remanded to the District Court where plaintiffs were permitted to take discovery limited to the issue of whether plaintiffs had a property interest in being admitted to the hospital as inpatients to support their due process claims.
Summary judgment motions filed by the plaintiffs and HHS were both denied last week due to the existence of significant factual disputes material to the question of whether CMS meaningfully channels the discretion of doctors by providing fixed or objective criteria for when patients should be admitted. For instance, the District Court found that there are genuine disputes of material fact about the extent to which hospitals rely on commercial screening tools in their patient status decisions, as well as the extent to which CMS actions and policies have shaped hospital decision-making about inpatient admissions.
However, the District Court allowed the case to continue, declining to fully dismiss the plaintiffs’ allegations. The court permitted the case to proceed on due process grounds as the complaint “plausibly alleged that the inpatient admission decision is the result of ‘significant encouragement’ from the Secretary [of HHS], through CMS,” relying on allegations that CMS, through its billing policies and through its retroactive contractor reviews, pressures and incentives hospitals to place more Medicare beneficiaries into observation status for longer periods of time. The court also noted that the “parties agree there are no administrative review procedures for Medicare beneficiaries who seek to challenge their placement on observation status.” However, the District Court disagreed with plaintiffs’ argument that beneficiaries do not receive sufficient notice of observation services because plaintiffs lack standing to challenge the adequacy of the notices they received since lack of notice did not cause plaintiffs’ injuries. Further, the District Court noted that the NOTICE Act moots the plaintiffs’ claims with regard to expedited notice.
The District Court’s decision is available here.
