The New Right to Appeal Medicare Observation Status: An update and a Remedy!

The New Right to Appeal Medicare Observation Status: An update and a Remedy! Image

Those Medicare recipients admitted to hospitals, who were injured by Medicare’s improper re-classification post-admission from Inpatient status to Observation status, now have the opportunity to be reimbursed for nursing home and rehabilitation services. The right extends back to 2009. The deadline for action is January 2, 2026.

The Issue

In the past, I have written about Medicare Observation status and the right to appeal it. For Medicare beneficiaries receiving traditional Medicare, a patient must stay three days or more in a hospital to satisfy the “qualifying hospital stay” requirement to trigger Medicare coverage of skilled nursing facility (“SNF”) care. A patient must be hospitalized as an Inpatient covered by Medicare Part A for three days before one can receive Medicare coverage of SNF services. This is called the Two Midnight Rule. If a patient has spent two midnights in the hospital, then the three-day requirement is met.

Failure to qualify as an inpatient means Medicare Part A will not pay for rehabilitation services or nursing home care when a patient is discharged from the hospital. The result is patients often go without necessary services or pay tens of thousands of dollars out of their own pockets.

Remember, Part A Medicare covers hospitalization and residential rehabilitation. Part B Medicare covers outpatient services, such as doctor visits, therapy, and medical equipment. Observation status is considered outpatient services, not hospitalization.

The Problem

Many patients are admitted and spend three days or more in a hospital. They receive that same treatment as any other patient. When discharged to a SNF for rehabilitation or permanent stay they suddenly find out that Medicare did not consider them as Inpatient, but under Observation Status. They were covered by Part B. Therefore, Part A coverage for the SNF was unavailable. Worse, sometimes patients were admitted as Inpatient, but had their status re-classified as Observation status after their admission. Sometimes the reclassification occurs after they are discharged from the hospital.

The Solution

In the class action case of Alexander v. Azar,613 F. Supp. 3rd 559 (D. Conn. 2020), aff’d sub nom. Barrows v. Becerra, 24 F.4th 116 (2d Cir. 2022) the Court found that the group of plaintiffs and therefore class members, who had their Inpatient status re-classified by Medicare to Observation status were denied Due Process and could file a retrospective appeal for out-of-pocket expenses for nursing home services. This covers hospitalizations between January 1, 2009 and February 13, 2025. A person appointed a Medicare Representative for a beneficiary may apply on the beneficiary’s behalf. See this form.  https://www.cms.gov/medicare/cms-forms/cms-forms/downloads/cms1696.pdf

To file a retrospective appeal the exclusive process ordered by the Court is to file a form with the “Eligibility Contractor.” This is the form. https://medicareadvocacy.org/wp-content/uploads/2024/12/Observation-Status-Retrospective-Appeals-Form-CMS-10885.pdf Representatives of deceased Medicare beneficiaries my appeal on behalf of the deceased person.

A flow chart illustrating the process for a retrospective appeal is attached: https://medicareadvocacy.org/wp-content/uploads/2024/12/Observation-Retroactive-Appeal-Flowchart.pdf

The deadline for filing a retrospective appeal is January 2, 2026. Medical documentation should be filed with the form.

If an appeal is successful then Medicare will pay for eligible nursing facility expenses. The provider (nursing home) should owe you a refund.

Going Forward: Prospective Appeals

Alright! So much for Medicare beneficiaries wronged in the past. What about going forward?

The Court in Alexander v. Azar requires Medicare to provide a process for expedited appeals for patients who do not have the required three-day inpatient stay. This is necessary for patients who may not have the required three day stay, but need SNF care. If the appeal is successful the patient will be considered an Inpatient and qualify for Medicare coverage of SNF services. Otherwise, patients will either go home without receiving essential services or they will spend tens of thousands of dollars just to be admitted to a SNF. In Delaware, the current cost of a SNF is approximately $15,000.00 a month.

Eligible to appeal are Medicare beneficiaries who are admitted as inpatients but later reclassified as “outpatients receiving observation services” and are either not enrolled in Part B or spent at least three days in the hospital.

Hospitals are required to deliver patients a “Medicare Change of Status Notice” to inform them of their right to appeal. It looks like this: https://medicareadvocacy.org/wp-content/uploads/2024/11/10868-MedicareChangeofStatusNotice.pdf  To appeal, patients contact the Medicare contractor listed on the notice. The hospital must furnish records for the Medicare contractor to review. Patients should be prepared to explain why they complied with the Two Midnight Rule. Again, that means they have spent at least two midnights in a row in the hospital. Patients should seek the comments/records of the physician who ordered the admission in the first place. The decision is to be made within one calendar day of the Medicare contractor receiving the information.

There is more than one level of expedited review. The beneficiary may proceed through Medicare’s standard administrative appeal process if necessary. Importantly, an appeal can be taken if one has left the hospital. An appeal can be taken at any time. A beneficiary can incur SNF expenses and qualify for Medicare coverage even after leaving the SNF. See attached flow chart: https://medicareadvocacy.org/wp-content/uploads/2025/03/Prospective-Appeals-Flowchart.pdf

If successful, Medicare Part A will cover the hospital stay. SNF services may be covered if the patient otherwise qualifies.

We can help

While the process is designed to permit non-lawyers to appeal, we are available to consult with Medicare recipients who have questions regarding the process.