Citing Risk of Unfair Denials, Federal Judge Orders Trial Over Three-Day Stay Rule

A federal judge this week ordered that a long-running lawsuit against the government over Medicare skilled nursing benefits must go to trial, citing the very real risk that residents have been wrongly denied coverage.

U.S. District Judge Michael Shea rejected the Department of Health and Human Services’ (HHS) request to dismiss the class action suit, first brought in 2011 on behalf of residents who claimed they were prevented from receiving Medicare Part A coverage because they were admitted to hospitals as outpatients.

Bloomberg Law first reported Shea’s ruling on the case, filed in the U.S. District of Connecticut, on Thursday.


“There is evidence in the record that would allow a reasonable factfinder to conclude that there is at least some risk that Medicare beneficiaries have been, and will be, erroneously designated as outpatients rather than inpatients and thus wrongly deprived of benefits under Medicare Part A,” Shea wrote in his decision.

The distinction between “inpatient” and “outpatient” stays has long been a point of contention for seniors seeking to receive skilled nursing care. Current law only allows Medicare coverage for SNF stays if they’re associated with a three-day inpatient stay in a hospital, though hospitals frequently feel pressure to admit residents on a less-costly outpatient basis. From the patient perspective, there’s frequently no visible difference between an inpatient or outpatient stay, with the rejection of SNF coverage usually marking the first sign that something was amiss.

Shea related the experience of one plaintiff in his ruling, describing how a man who spent five days in a hospital for a shoulder injury in early 2016 ended up receiving a Medicare rejection and a bill for his skilled nursing services, despite the fact that his physician explicitly ordered the hospital to admit him on an inpatient basis.


“He contacted the hospital and was told that ‘the powers that be’ had placed him on observation status,” Shea wrote. “He testified that his treating physician appeared ‘aghast’ upon learning that his inpatient order had been overridden.”

The nebulous difference between inpatient and outpatient also has an impact on operators. The HHS Office of the Inspector General (OIG) earlier this year accused providers of receiving $84 million in improper skilled nursing payments related to outpatient stays, though even the watchdog agency admitted that operators’ actions weren’t necessarily malicious.

“We noted that hospitals did not always provide correct inpatient stay information to SNFs, and SNFs knowingly or unknowingly reported erroneous hospital stay information on their Medicare claims to meet the three-day rule,” the OIG concluded.

In response to that report, a team of physicians took to the pages of the journal HealthAffairs to argue that the system itself is designed to confuse patents and hospitals alike. The doctors called on the Centers for Medicare & Medicaid Services (CMS) and HHS to adopt a unified timeline for determining benefits; in addition to the three-day stay rule, hospitals use the “two midnights” standard to determine whether or not a resident should be admitted on an inpatient or outpatient basis.

The class of plaintiffs who can participate in the suit includes any Medicare beneficiary who spent more than three days in a hospital but was denied Part A coverage for services from January 1, 2009 onward.

In concluding his order, Shea noted the length of the current action and expressed a strong desire to see the matter through to a trial.

“All of the named plaintiffs who were alive when the case was filed have since passed away,” he wrote. “The time for motion practice is over. I will hold a telephonic status conference on April 3, 2019 at 11:00 AM to choose a trial date. I will not move that date once it is established.”

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