Lawsuit Over Three-Day Stay Rule for Medicare SNF Coverage Begins as Verma Promises: ‘We’re Listening’

A class-action lawsuit challenging the Medicare eligibility rules for skilled nursing coverage will finally get its day in court this week — shortly after the administrator in charge of the program publicly questioned the status quo.

The trial over the lawsuit, first filed in 2011, began Monday in a Hartford federal courtroom, according to an in-depth analysis of the issue from Kaiser Health News.

At the heart of the litigation is the so-called “three-day stay” requirement for nursing home coverage under Medicare. Current rules mandate that beneficiaries spend three days in the hospital on an inpatient basis in order to receive their subsequent 100 days of Medicare skilled nursing coverage.


But that “inpatient basis” part has caused significant confusion for providers and patients alike. Hospitals frequently admit elderly patients on an “observation stay” basis, which does not qualify as a full admission under Medicare rules — but at the same time appears to be no different than a qualifying inpatient hospital stay. Once patients are discharged from an observation stay into a skilled nursing facility, they discover that Medicare will not cover the costs, forcing them to pay out-of-pocket or through private insurance, if applicable.

Since 2011, a bipartisan group of federal lawmakers has routinely filed legislation that would remove the distinction between inpatient and observation stays for the purposes of nursing home Medicare coverage.

“Whether a patient is in the hospital for three days as an inpatient, or for three days under ‘observation status’ — three days is three days, and quibbling over semantics should not keep Americans from accessing the care they’ve been prescribed by health care professionals, or force them to go into medical debt in order to cover the cost,” Rep. Joe Courtney, a Connecticut Democrat, said in a statement announcing the most recent version of the proposed legislation back in March.


The industry has also issued its own calls for change, with the National Observation Stays Coalition — an organization that includes skilled nursing trade groups LeadingAge and the American Health Care Association — asking Congress to pass Courtney’s bill in a formal statement before the House Ways and Means Health Subcommittee in May.

“It is simply not right to limit access to quality care for those most in need,” the coalition wrote in the statement. “Now is the time for Congress to pass legislation that addresses this issue once and for all.”

Should the class-action plaintiffs — which now number 14 patients and families affected by the rule — win in their suit against the Department of Health and Human Services (HHS), any Medicare beneficiary who experienced an observational hospital stay of three days or longer since January 2009 could file an appeal for back reimbursements, Kaiser Health News reported; that number could exceed 1.3 million claims, according to the outlet.

“This is about whether the government can take away health care coverage you may be entitled to and leave you no opportunity to fight for it,” Alice Bers, litigation director at the Center for Medicare Advocacy, told the publication.

Judith Stein, executive director at the Center for Medicare Advocacy, told SNN that a win for the plaintiffs would establish a permanent precedent for future appeals as well.

“If we win this case, people considered ‘observation status’ will have the right, which they do not have now, to appeal being classified in observation status rather than admitted as inpatients,” Stein said via e-mail.

Government lawyers have argued that the final decision over observation and admissions should rest with doctors and nurses, not HHS, KHN observed; under Medicare’s “two-midnight” rule, hospital physicians are expected to formally admit patients if they anticipate a stay lasting more than two midnights, though observation stays still frequently stretch longer.

The plaintiffs may have an ally in high places: Centers for Medicare & Medicaid Services (CMS) administrator Seema Verma, who took to Twitter last week to decry the rule — though not specifically in the context of the lawsuit.

“#Medicare beneficiary who requires skilled care in a nursing home? Better be admitted for at least 3 days in the hospital first if you want the nursing home paid for,” Verma tweeted, including a troubled-face emoji. “Govt doesn’t always make sense. We’re listening to feedback.”

Verma ended her tweet with the hashtags #RedTapeTales and #TheBoldandTheBureaucratic.

Under Verma’s watch, CMS has taken several major steps that officials say will reduce paperwork and reporting burdens on skilled nursing operators, including the recent enforcement delay for the final round of the Requirements of Participation. Those public criticisms of red tape even made it into the administrator’s five-point plan for improving nursing home enforcement and oversight, which includes a call for less-frequent surveys for top-performing SNFs.

“We’ve talked a lot about the operational changes that we’re making, the policy changes that we’re making, but at the end of the day, this is about putting patients first,” Verma said on a recent episode of CMS’s podcast series. “It’s about ensuring that every person that goes to a nursing home can expect a high level of safety and quality.”

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