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Hospital 'Observation' Status Prompts Federal Class Action Suit

Cheryl Clark, for HealthLeaders Media, November 9, 2011

He signed a notice indicating he was a hospital inpatient and was moved to a hospital floor. But he never actually was technically admitted as an inpatient, leaving him responsible for paying Part B co-insurance for outpatient claims and $5,685 for skilled nursing facility care he received after he left the hospital, according to the lawsuit.

Another patient, the late Nettie Jean Sapp, 77, had a history of breast cancer, Parkinson's disease and rheumatoid arthritis, according to the complaint. Just before she was taken to the hospital, she experienced profound weight loss, weakness, and episodes of memory loss.

When she fell in her home, she was taken to Scott and White Hospital. There, during a five-day stay, she received a head CT, X-ray of the lumbar spine, an EKG, a bilateral carotid ultrasound, and a brain MRI, the lawsuit says. She was diagnosed with a urinary tract infection and received oral and intravenous antibiotics.

But "because she was not formally admitted to the hospital and therefore did not satisfy the three-day rule, her subsequent care in a skilled nursing facility, from April 26, 2010 through June 24, 2010, was not covered," the lawsuit says. She subsequently moved to an assisted living facility, where she died, because she could not afford the cost of the nursing facility.

Bills in Congress would correct part of the problem by allowing the time a patient spends in observation to be counted as inpatient care to satisfy the three-day rule. They were introduced by Sen. John Kerry, D-Mass and Rep. Joe Courtney, D-CT.

"Given the tenor of the times," Deford acknowledges, "those bills are unlikely to go anywhere."


Cheryl Clark is senior quality editor and California correspondent for HealthLeaders Media. She is a member of the Association of Health Care Journalists.
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3 comments on "'Observation' Status Prompts Federal Class Action Suit"


Janis Jimmie (11/26/2011 at 11:19 PM)
It seems the agency that ensures oversight of care provided to elders continue to complicate the payment system that further complicates the provision of care. What seems to be created is more layers of bureaucracy that ultimately increases cost during the assurance of cost appropriate care!

Janice Noller, RHIA, CCS (11/9/2011 at 2:58 PM)
I agree with Dr. Hirsch - physicians and case managers try to work together to ensure fairness on behalf of the patient and the facility, but the regulations for Observation status are so convoluted and complex, no wonder this happens. The lawsuit may not go anywhere as the article states, but maybe (or not)CMS will open its eyes and simplify the regulations. There is a place for Observation in facilities - just make it easier to use and understand!

Ronald Hirsch, MD (11/9/2011 at 9:32 AM)
It was heartening to see that they chose to file the suit against HHS and not the hospitals. The rules for Observation are ambiguous at best and every day hard working case managers struggle to figure out the "correct" status for patients such as those represented in the lawsuit.