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January 22, 2015
  Barrows v. Burwell--Second Circuit
Headline: Second Circuit Vacates the Dismissal of Medicare Beneficiaries' Claim Regarding the Use of "Observation Status" in Hospital Admissions

Area of Law: Civil Procedure, Constitutional, Medicare

Issue(s) Presented: Whether Medicare Beneficiaries have a property interest in their hospital admission status under the Due Process Clause.

Brief Summary: Medicare beneficiaries filed a putative class action suit on behalf of themselves and other Medicare beneficiaries against the Secretary of Health and Human Services alleging that the Secretary's use of "observation status" deprives plaintiffs of Medicare Part A coverage to which they are entitled. Plaintiffs claim Medicare billing rules incentivize hospitals to admit patients under "observation status," which is covered by Medicare Part B, rather than "inpatient status," which is covered more comprehensively by Medicare Part A. Plaintiffs claim they were admitted to hospitals under "observation status" and as a result incurred hundreds of dollars in copays and thousands of dollars in post hospitalization nursing care bills. Plaintiffs claim these costs would have been covered under Medicare Part A to which they are entitled if they had been admitted as inpatients. The district court dismissed the complaint in its entirety and Plaintiffs appealed. The Second Circuit affirmed the dismissal of the Medicare Act claim, but vacated the dismissal of the Due Process Clause claim, remanding the case for limited discovery as to whether plaintiffs have a property interest in their hospital admission status.
The full text of the opinion may be found at http://www.ca2.uscourts.gov/de...ced1b/1/hilite/


Extended Summary: Plaintiffs bring this suit on behalf of themselves and Medicare beneficiaries. Plaintiffs claim they were admitted under observation status rather than as inpatients and as a result incurred thousands of dollars in health care costs. As inpatients, Medicare beneficiaries are entitled to Medicare Part A coverage. Medicare Part A is titled "Hospital Insurance Benefits for Aged and Disabled" and creates an entitlement to inpatient hospital services and post hospitalization extended care. Under Part A, beneficiaries pay a one-time deductible for the first sixty days in the hospital. As observation patients, Medicare beneficiaries are entitled to Part B coverage. Medicare Part B is titled "Supplementary Medical Insurance Benefits for Aged and Disabled" and covers visits to doctors and other outpatient treatments. Under Part B, patients owe a co-pay for each service received and post hospitalization nursing care is not covered.

Plaintiffs allege the Secretary's use of "observation" status deprives them of Medicare Part A coverage to which they are entitled. Plaintiffs claim that the use of observation status and the average length of stay for a patient admitted under observation status has increased dramatically in recent years. Plaintiffs attribute that increase to a Medicare billing rule, which states that "f a beneficiary is admitted but that admission is later found to be improper, the hospital must refund the Part A payment to Medicare but cannot rebill under Part B." Plaintiffs claim the rule incentivizes hospitals to admit patients under observation status because that ensures that the hospital will receive payment.

Plaintiffs' complaint pled nine causes of action including violations of the Medicare Act, the Administrative Procedure Act, the Freedom of Information Act, and the Due Process Clause. Plaintiffs sought a permanent injunction (1) prohibiting the Secretary to allow Medicare beneficiaries to be placed on observation status, (2) directing the Secretary to provide written notification to any Medicare beneficiary who is placed on observation status of the nature of the action and the consequences for coverage and the right to review the action, and (3) directing the Secretary to establish a procedure for administrative review of a decision to place a beneficiary on observation status. The district court dismissed the complaint in its entirety and Plaintiffs appealed two claims.

The issue on appeal is whether the Secretary's failure to provide expedited written notice and administrative review of Medicare beneficiaries' placement into "observation status" violates the Medicare Act and the Due Process Clause. The Second Circuit affirmed the dismissal of the Medicare Act claim holding, first, that Plaintiffs lack standing to challenge the adequacy of the notice they received and, second, nothing in the Act entitles Plaintiffs to the process changes they seek. The Circuit held the district court erroneously relied on the Secretary's assertion that the decision to place a patient into "observation" or "inpatient" status is a complex medical decision left to the discretion of the doctor, rather than accepting Plaintiffs' assertion that, in practice, the decision is based on fixed Medicare criteria, and not left to the discretion of doctors. The impermissible finding of fact led the court to conclude that Plaintiffs lacked a property interest in their hospital admission status. This determination was the sole ground for dismissing the Due Process claim. The Second Circuit remanded the case for limited discovery on the issue of whether Plaintiffs possess a property interest in their hospital admission status.

Panel (if known): Circuit Judges Winter, Walker, and Cabranes

Argument Date: 10/23/2014

Date of Issued Opinion: 01/22/2015

Docket Number: No. 13¿4179¿cv

Decided:
Affirmed in part and vacated in part.

Case Alert Author
: Joan O'Connor Archer

Counsel: Alice Bers (Gill Deford, Center for Medicare Advocacy, Inc., Willimantic, CT; Anna Rich, National Senior Citizens Law Center, Oakland, CA, on the brief), Center for Medicare Advocacy, Inc., Willimantic, CT, for Plaintiffs¿Appellants.

Jeffery A. Clair (Stuart F. Delery, Assistant Attorney General, Adam C. Jed, Michael S. Raab, United States Department of Justice, Civil Division, Appellate Staff, Washington, DC; Deirdre M. Daly, United States Attorney for the District of Connecticut, on the brief), United States Department of Justice, Civil Division, Appellate Staff, Washington, DC, for Defendant¿Appellee.

Mark G. Arnold, Husch Blackwell LLP, Clayton, MO, for Amicus Curiae American Health Care Association.
Edith M. Kalls, Whatley Kallas, LLP, New York, NY, for Amici Curiae American Medical Association, et al.
Catherine E. Stetson, Hogan Lovells US LLP, Washington, DC, for Amicus Curiae American Hospital Association.

Author of Opinion: Judge Cabranes

Circuit: 2nd Circuit

Case Alert Circuit Supervisor: Emily Gold Waldman

    Posted By: Emily Waldman @ 01/22/2015 05:57 PM     2nd Circuit  

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