New CMS Medicare Appeals Proposal Falls Short of Addressing Nursing Homes’ 3-Day Stay Issue

The Centers for Medicare & Medicaid Services (CMS) announced a proposed rule that aims to establish appeals processes for certain Medicare beneficiaries in Original Medicare who undergo a change in their hospital status, often triggering a denial of inpatient and skilled nursing care.

The proposed rule is a result of a 2011 nationwide class action case, which sought to grant Medicare beneficiaries the right to challenge their placement as outpatients receiving observation services during their hospital stay.

The change in hospital status pertains specifically to individuals initially admitted as inpatients but later reclassified as outpatients. The proposed rule addresses the appeal rights for those who meet specific eligibility criteria in such circumstances, which would create new requirements for operators, the federal agency noted in a press release.


An AHCA/NCAL spokesperson told Skilled Nursing News in an email that the organization supports what CMS is aiming to achieve with the proposed rule.

“Medicare beneficiaries should have the right to appeal and ensure they are not denied their needed skilled nursing benefits,” the spokesperson said. “While this proposed rule will certainly be helpful, we urge Congress to resolve this issue permanently by eliminating the three-day-stay requirement or recognizing observation stays as qualifying stays.”

At a minimum, patients who spend three days in a hospital, regardless of their inpatient or observation designation, must be able to access post-acute care in a skilled nursing facility when they need it without fear of considerable out-of-pocket costs, the AHCA spokesperson said.


“That is why AHCA/NCAL endorses – along with a coalition of 34 national provider and beneficiary advocate organizations – the bipartisan Improving Access to Medicare Coverage Act (H.R. 5138), which would help Medicare beneficiaries who are hospitalized in observation by requiring that time spent in observation be counted towards meeting the three-day prior inpatient stay,” the spokesperson said.

LeadingAge said they are currently reviewing the rule.

“Generally speaking, we support regulatory initiatives that ensure older adults can fully access and use their Medicare benefits,” a spokesperson said. 

Background on the proposed rule

The nationwide class action case, Alexander v. Azar, filed in 2011, which sought to grant Medicare beneficiaries the right to challenge their placement as outpatients, did not initially lead to appeal rights in a district court decision in March 2020. However, the court ended up directing the Secretary of the Department of Health and Human Services (HHS) to create additional appeals processes for a specified class of Medicare recipients facing reclassification.

The class comprises individuals initially admitted as hospital inpatients but subsequently reclassified as outpatients receiving observation services. The court mandated the creation of expedited and retrospective appeals processes, and the United States Court of Appeals for the Second Circuit affirmed this decision in January 2022.

Proposed rule highlights

CMS is proposing an expedited appeals process for eligible beneficiaries who disagree with the hospital’s decision to reclassify their status while still in the hospital. This process, handled by a Beneficiary & Family Centered Care – Quality Improvement Organization (BFCC-QIO), allows for an independent review of patient records within one day for timely requests.

A standard appeals process is also proposed for beneficiaries who do not file an expedited appeal, offering the opportunity to appeal the hospital’s decision regarding reclassification. This process follows similar procedures to the expedited process but with longer timeframes for filing and decision-making.

A retrospective process is proposed for beneficiaries with hospital admissions on or after January 1, 2009, involving status changes before the prospective appeals processes’ implementation. Beneficiaries must demonstrate eligibility and satisfy criteria for Part A coverage, with a one-year window from the final rule’s implementation date to file an appeal request.

To align with the proposed appeals processes, CMS suggested some other related changes, including requiring the delivery of a related appeals notice as part of the Medicare provider agreement and modifying QIO regulations.

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