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Class Action Lawsuit Alleges Right to Inpatient Hospital Stays: Hospitals Are Damned If They Do…and Don’t!

Hospitals – “Lend me your ears; I come to warn you, not to praise RACs. The evil that RACs do lives after them; The good is oft interred with their appeals; So let it be with lawsuits.” – Julius Caesar, with modifications by me.

A class action lawsuit is pending against U.S. Health and Human Services (HHS) alleging that the Center for Medicare and Medicaid Services (CMS) encourages (or bullies) hospitals to place patients in observation status (covered by Medicare Part B), rather than admitting them as patients (covered by Medicare Part A). The Complaint alleges that the treatments while in observation status are consistent with the treatments if the patients were admitted as inpatients; however, Medicare Part B reimbursements are lower, forcing the patient to pay more out-of-pocket expenses without recourse.

The United States District Court for the District of Connecticut refused to dismiss the class action case on February 8, 2017, giving the legal arguments within the Complaint some legal standing, at least, holding that the material facts alleged warrant investigation.

The issue of admitting patients versus keeping them in observation has been a hot topic for hospitals for years. If you recall, Recovery Audit Contractors (RACs) specifically target patient admissions. See blog and blog. RAC audits of hospital short-stays is now one of the most RAC-reviewed issues. In fiscal year 2014, RACs “recouped” from hospitals $1.2 billion in allegedly improper inpatient claims. RACs do not, however, review outpatient claims to determine whether they should have been paid as inpatient.

On May 4, 2016, CMS paused its reviews of inpatient stays to determine the appropriateness of Medicare Part A payment. On September 12, 2016, CMS resumed them, but with more stringent rules on the auditors’ part. For example, auditors cannot audit claims more than the six-month look-back period from the date of admission.

Prior to September 2016,  hospitals would often have no recourse when a claim is denied because the timely filing limits will have passed. The exception was if the hospital joined the Medicare Part A/Part B rebilling demonstration project. But to join the program, hospitals would forfeit their right to appeal – leaving them with no option but to re-file the claim as an outpatient claim.

With increased scrutiny, including RAC audits, on hospital inpatient stays, the class action lawsuit, Alexander et al. v. Cochran, alleges that HHS pressures hospitals to place patients in observation rather than admitting them. The decision states that “Identical services provided to patients on observation status are covered under Medicare Part B, instead of Part A, and are therefore reimbursed at a lower rate. Allegedly, the plaintiffs lost thousands of dollars in coverage—of both hospital services and subsequent skilled nursing care—as a result of being placed on observation status during their hospital stays.” In other words, the decision to place on observation status rather than admit as an inpatient has significant financial consequences for the patient. But that decision does not affect what treatment or medical services the hospital can provide.

While official Medicare policy allows the physicians to determine the inpatient v. observation status, RAC audits come behind and question that discretion. The Medicare Policy states that “the decision to admit a patient is a complex medical judgment.” Ch. 1  § 10. By contrast, CMS considers the determination as to whether services are properly billed and paid as inpatient or outpatient to be a regulatory matter. In an effort to avoid claim denials and recoupments, plaintiffs allege that hospitals automatically place the patients in observation and rely on computer algorithms or “commercial screening tools.”

In a deposition, a RAC official admitted that if the claim being reviewed meets the “commercial screening tool” requirements, then the RAC would find the inpatient status is appropriate, as long as there is a technically valid order. No wonder hospitals are relying on these commercial screening tools more and more! It is only logical and self-preserving!

This case was originally filed in 2011, and the Court of Appeals overturned the district court’s dismissal and remanded it back to the district court for consideration of the due process claims. In this case, the Court of Appeals held that the plaintiffs could establish a protected property interest if they proved their allegation “that the Secretary—acting through CMS—has effectively established fixed and objective criteria for when to admit Medicare beneficiaries as ‘inpatients,’ and that, notwithstanding the Medicare Policy Manual’s guidance, hospitals apply these criteria when making admissions decisions, rather than relying on the judgment of their treating physicians.”

HHS argues that that the undisputed fact that a physician makes the initial patient status determination on the basis of clinical judgment is enough to demonstrate that there is no due process property interest at stake.

The court disagreed and found too many material facts in dispute to dismiss the case.

Going forward:

Significant discovery will be explored as to the extent to which hospitals rely on commercial screening tools. Also whether the commercial screening tools are applied equally to private insureds versus Medicare patients.

Significant discovery will be explored on whether the hospital’s physicians challenge changing a patient from inpatient to observation.

Significant discovery will be explored as to the extent that CMS policy influences hospital decision-making.

Hospitals need to follow this case closely. If, in fact, RAC audits and CMS policy is influencing hospitals to issue patients as observation status instead of inpatient, expect changes to come – regardless the outcome of the case.

As for inpatient hospital stays, could this lawsuit give Medicare patients the right to appeal a hospital’s decision to place the patient in observation status? A possible, future scenario is a physician places a patient in observation. The patient appeals and gets admitted. Then hospital’s claim is denied because the RAC determines that the patient should have been in observation, not inpatient. Will the hospitals be damned if they do, damned if they don’t?

damned

In the meantime:

Hospitals and physicians at hospitals: Review your policy regarding determining inpatient versus observation status. Review specific patient files that were admitted as inpatient. Was a commercial screening tool used? Is there adequate documentation that the physician made an independent decision to admit the patient? Hold educational seminars for your physicians. Educate! And have an attorney on retainer – this issue will be litigated.

How the ACA Has Redefined the Threshold for “Credible Allegation of Fraud” and Does It Violate Due Process?

I believe that everyone would agree with me that The Affordable Care Act (ACA) has done more to impact health care legally…probably since 1966 when Medicare was established.  Whether you think the impact is beneficial or negative, it does not matter.  The impact exists nonetheless.

One of the changes the ACA has yielded is the threshold for suspending Medicare and Medicaid payments to providers based on credible allegations of fraud is lower. 

While CMS regulations authorized the suspension of Medicare and Medicaid payments prior to the enactment of the ACA, § 6402(h) lowers the standard the government must meet in order to suspend payments based upon suspected fraud.

The lower standard for a state to suspend Medicaid and Medicare payments nip…nay, I say…bite at the fabric of due process.

First, what is a “credible allegation of fraud?”

Credible allegation of fraud means an allegation from any source, such as data mining, whistleblowers, and/or fraud hotline complaints.  Quite literally, you could be accused of having credible allegations of fraud because an ex, disgruntled employee calls the fraud hotline.

The definition of “credible” is equally as scary.  If there is “indicia of reliability,” it is credible.  I have no idea what “indicia” means, but it does not sound like much.    So if there is indicia of reliability when your ex, disgruntled employee calls the fraud hotline, there may be credible allegations of fraud against you.

When you have credible allegations of fraud against you, your Medicaid/Medicare payments are suspended.  Without an opportunity to rebut the allegations.  Without you even knowing from where the allegation came.

I make the analogy (albeit, admittedly, a poor one) of my law license.  Or an M.D.’s license.  Or a teacher’s license.  We do not have a right to a law license.  But, I argue, once you go through the process and pass the necessary tests and are awarded a law license (or M.D. license or teacher’s license), you have a protected property right in continuing in the profession. 

There is a good cause exception and you should try to assert the exceptions, but this blog concentrates on the suspension and the due process (or lack thereof) involved.

CMS states that providers have “ample opportunity to submit information to us in the established rebuttal statement process to demonstrate their case for why a suspension is unjust.”

However, think of this…in Medicare, notice to the provider is not required prior to the suspension.  So, I ask you, how can you plead the suspension is unjust when you have no notice? Obviously, only after the suspension has been put into place. Due process violation?

In Medicaid, the agency must notify the provider of the suspension within 5 days of taking the action.  Although it can be extended to 90-days upon request of a law enforcement agency.

Even though the Medicare suspension statutes do not require notice, the Medicare statutes are a bit more provider-friendly when it comes to the length of time during which you may be suspended.  For Medicare providers, the suspension can last a period of 180 days.  However, the 180 days can be extended.

Conversely, for Medicaid providers, there is no scheduled period of suspension.

In my cursory review of case law, I found one case in which the Medicaid provider had suffered suspension of Medicaid reimbursements for over 4 years.  Obviously, the company had closed and staff had been terminated.  You cannot maintain a business without revenue.

So, is the suspension of Medicare and Medicaid payments upon a credible allegation of fraud a violation of due process?

 Due process. 

Do not even get me started on the importance of due process.  In fact, I have blogged about the importance of due process before in this blog. “NC Medicaid and Constitutional Due Process.”

Due process is generally described as notice and an opportunity to be heard.  But due process does not apply to everything.  For example, you do not have due process rights to your drivers’ license.  Certain infractions will cause you to lose your drivers’ license without due process.  That is because driving is a privilege, not a right.  You do not have a right to drive.  Instead due process attaches when a liberty or a property right is deprived.

Rights include:

The right to vote (for some…not felons)

Freedom of religion

Freedom of speech

Obviously, in certain circumstances, those rights can be restricted (shouting fire in a crowded movie theatre, for example).  But, generally, you have due process to the deprivation of any of your rights.

For purposes of this blog, we are concentrating on whether due process attaches to the deprivation of Medicare and Medicaid reimbursements.   If someone takes away your Medicaid and/or Medicare reimbursements, are you entitled to due process…or notice and an opportunity to be heard?

Some courts have held that “health care providers have a constitutionally protected property interest in continued participation in the Medicare and Medicaid programs.” 

Obviously, in the jurisdictions in which this view is followed, without question, you have a right to due process upon suspension of Medicaid and/or Medicare reimbursements.

However, the view that Medicaid and Medicare participation is a constitutionally protected right is not the majority view.  Or, I should say, this particular issue has not arisen in all jurisdictions.  Some jurisdictions have not even considered whether the participation in Medicaid and Medicare is a protected property interest.

To be completely clear, there is no protected property interest in procuring a Medicaid or Medicare contract.  Only once you receive the contract does your interest in the contract become protected (in those certain jurisdictions).

North Carolina, for example, has not contemplated this issue (at least, not since after 10 NCAC 22F.0605 was enacted).

Interestingly enough, 10A N.C. A. C. 22F.0605 states “[a]ll provider contracts with the North Carolina State Medicaid Agency are terminable at will. Nothing in these Regulations creates in the provider a property right or liberty right in continued participation in the Medicaid program.”

So, one would think that, in NC, there is no protected property interest in continued participation in the Medicaid program.

However, in the Office of Administrative Hearings (OAH), this very issue was contemplated in a few contested case hearings and the Administrative Law Judges (ALJ) have decided that there is a protected property interest in the continued participation of the Medicaid program, despite 10A N.C. A. C. 22F.0605.  The decisions are based on federal and state law.

 “North Carolina statutes and rules provide procedural due process.  Federal Medicaid regulations are replete with provisions that require that notice be given to the provider of the suspension or termination of Medicaid payment for services.”

 “The Supreme Court has ruled that property rights can be created by administrative regulations and that the “sufficiency of the claim of entitlement must be decided by reference to state law.”‘ (Internal cite omitted). Bowens v. N.C. Dept. of Human Res., 710 F.2d 1015, 1017 (4th Cir. 1983).  Our state statutes and rules have the procedural and substantive safeguards, indicating that the provider’s participation is not terminable at will.” (This opinion was written after 10A N.C. A. C. 22F.0605 was enacted).

While these OAH decisions have not undergone judicial review, at least, in OAH, providers may have a protected property interest in the continuation of participation in the Medicaid program.  And analogous argument would exist for Medicare providers.

Who knows? Maybe NC will follow the view that providers have a protected property interest in continuing participation in Medicaid…

Just imagine if the government could snatch away law licenses…or M.D.’s licenses…or teachers’ licenses…without any due process.  We would live in fear of losing our livelihoods.