Opinion on Outcome of Alexander v Azar for Patients Placed in Observation Status

Paul Arias EJD, MIS, BSN, RN, CMAC

Alexander v Azar was finally decided after many years spent in the court system. Plaintiffs in a class action lawsuit stated they felt that their due process rights were violated when they were placed in Observation status without any method to appeal that decision. In a 117-page decision the United States District Court, District of Connecticut came to two conclusions which have monumental consequences for the beneficiaries. One provides appeal rights to beneficiaries that are admitted as inpatients and then subsequently downgraded via Code 44 to Observation and those that do not get appeal rights for beneficiaries that are placed directly into Outpatient Observation.

The court came to the conclusion via the determination of due process of law in which to state a due process claim, a plaintiff must show that (1) state action (2) deprived him or her of liberty or property (3) without due process of law. See Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 59 (1999).

It is with the second finding that I see a potential issue. The judge stated that “I find that the remaining class members—those whose physicians initially placed them on observation status and who were never admitted as inpatients—have failed to prove their due process claims, because the physicians’ decisions generally did not constitute state action. These class members have also failed to prove a separate property interest in inpatient admission, because a physician’s admission decision is not governed by the sort of mandatory standards that can create a property interest under the law.” Unlike his finding that reversing course from Inpatient to Observation was due to pressure from the Secretary of Health “that some class members, specifically, those who were initially admitted as inpatients by a physician but whose status during their stay was changed to observation, have demonstrated that the Secretary is violating their due process rights. The trial evidence showed that such changes are invariably caused by utilization review staff applying mandatory, nationwide standards set by CMS, in response to significant pressure from the Secretary. For class members whose inpatient status was changed to observation, then, there is enough involvement by the government to find that the deprivation of their property interest in Part A coverage was attributable to the Secretary and thus a product of “state action,” a necessary element of a due process claim.”

I would argue that what the court failed to see was that physicians that make decisions to admit to inpatient or place in observation are just as pressured by the same rules and those rules are promulgated by CMS in the benefit manuals and are persecuted by audits if they do not get it correct. The court went into a lengthy discussion of the rules for admission based on the benefit manuals to point out that the physician had sole discretion to admit the patient on their judgment. If due process is at the heart of this case and patients are left without access to their Part A benefits due to a decision from the very beginning of being placed in observation without the same appeals process of those that are downgraded, then appeal rights should be conveyed to this class as well. Understanding how CMS defines an inpatient and what decision the physician uses to admit or place a patient as observation is the same whether it is in the initial admission process or a day later when a utilization review committee asks to downgrade a patient, it is through a medical necessity review process and examination that, that conclusion comes to light. The Medicare Beneficiary Manual Chapter 1 Inpatient Hospital Services Covered Under Part A states the following and holds physicians to their standard:

“An inpatient is a person who has been admitted to a hospital for bed occupancy for purposes of receiving inpatient hospital services (see §10.2 below). Generally, a patient is considered an inpatient if formally admitted as inpatient with the expectation that he or she will require hospital care that is expected to span at least two midnights and occupy a bed even though it later develops that the patient can be discharged or transferred to another hospital and not actually use a hospital bed overnight. The physician or other practitioner responsible for a patient's care at the hospital is also responsible for deciding whether the patient should be admitted as an inpatient. Physicians should use the expectation of the patient to require hospital care that spans at least two midnights period as a benchmark, i.e., they should order admission for patients who are expected to require a hospital stay that crosses two midnights and the medical record supports that reasonable expectation. However, the decision to admit a patient is a complex medical judgment which can be made only after the physician has considered a number of factors, including the patient's medical history and current medical needs, the types of facilities available to inpatients and to outpatients, the hospital's by-laws and admissions policies, and the relative appropriateness of treatment in each setting.

Factors to be considered when making the decision to admit include such things as:

 • The severity of the signs and symptoms exhibited by the patient;

 • The medical predictability of something adverse happening to the patient;

 • The need for diagnostic studies that appropriately are outpatient services (i.e., their performance does not ordinarily require the patient to remain at the hospital for 24 hours or more) to assist in assessing whether the patient should be admitted; and

• The availability of diagnostic procedures at the time when and at the location where the patient presents.

 Admissions of particular patients are not covered or noncovered solely on the basis of the length of time the patient actually spends in the hospital.”

Even if the physician has the overall judgement to admit a patient per the courts interpretation those of us that actually work in healthcare understand that the pressures from CMS and their alphabet soup contractors that audit and make decisions about those admissions use CMS rules to question those decisions and deny cases as well as take away money and or hold healthcare systems liable for those admissions up to and including corporate integrity agreements (CIA) with millions of dollars in fines. The court explained the roles of some of the contractors and glossed over the role of the OIG and the DOJ.  One such CIA was provided to Banner Health in 2013. Banner was accused via a Qui Tam lawsuit in which the department of justice was involved of knowingly defrauding the government in three ways: by falsifying Medicare bills to avoid denials, by billing short-term outpatient services as though they were inpatient services, and by inflating the number of hours spent observing patients but through the CIA no wrongdoing was acknowledged. I argue again that due process for patients is an issue if physicians are being helped to the standard of the rules set forth via the scrutiny of the various federal agencies up and including the department of justice and their judgment is being questioned. The court goes on to discuss the process to determine admission but uses an expert from Brigham and Women’s that has an Emergency Room Observation Unit in which the emergency room physician places patients in observation and does not have admission privileges. The court discusses the difference between the ED physician and an inpatient admission but fails to distinguish physicians that can place patients in observation in units outside of the emergency room. The court spent much time to discuss the two midnight rule to state that, “the Two Midnight Rule does not create a property interest in inpatient admission because it does not require physicians to order such admission when its criteria are satisfied, and thus does not "mandat[e] a defined administrative outcome” They go on to explain “The evidence at trial did not suggest that the practices of physicians establish a property interest in inpatient admission either. It is true that property interests can be established not only by statute, regulation, or other formal policy, but also by "such diverse sources as unwritten common law and informal institutional policies and practices." Furlong, 156 F.3d at 395 (citing Perry v. Sindermann, 408 U.S. 593, 602-03 (1972)). "A person's interest in a benefit is a 'property' interest for due process purposes if there are such rules or mutually explicit understandings that support his claim of entitlement to the benefit .... " Id. ( quoting Sindermann, 408 U.S. at 601)” The conclusion that court came to from the evidence before them was “Treating physicians do not order inpatient admission when they determine that it would reasonable to expect a two-midnight stay; rather, the trial evidence showed that they rely on their own, individual expectation regarding the necessary duration of care in deciding whether to order inpatient admission”

I will point out again that having spent the last 20+ years in case management pursuing the best way to adhere to CMS rules and to educate physicians on status for admission is that while they make independent medical judgment for care they are still bound by the rules of status for billing and work alongside case management and physician advisors (whichever form they come in) to determine if the patient is admitted as inpatient or placed under outpatient observation, that is reality, not the rules based test that our court system has evolved into using precedent and procedure to make a determination in which the common day to day operations is not accounted for. Yes, they had a couple of experts, but the Government expert worked for a facility that only had an emergency room observation unit with pre-determined observation protocols whose expert opinion was given a heavy weight in the outcome. The plaintiff’s physician it seems did not provide much detail, at least as far was discussed in the final opinion.

                We are left with rules one and rules for none and still stuck with the 3-day SNF rule for those that are placed into observation from the beginning of their stay, was that intentional one must weigh that if you have a conspiratorial mind set. It seems that patients who continue to be placed into observation from the beginning that perhaps might truly be sick enough to be an inpatient might miss the opportunity to appeal that decision and perhaps in time this might change. I know when the appeal rights through the important message for Medicare was first expanded, we thought we would have many more appeals and maybe if we do give more appeal rights that might happen but if we provide “rights” to Medicare beneficiaries should we not provide them with appeal rights too? I am not a judge and the analysis of the case in the opinion set by the court was thorough but I make my opinion based on years of firsthand knowledge of working the front lines and dealing with CMS rules, RAC denials, probe and educate audits, ALJ hearings and many years of reviews and countless hours of reading CMS manuals and rules to interpret what needs to be done to avoid a corporate integrity agreement. In the end this is my opinion that the court could have gone further in their analysis of due process.

Copyright 2024 This Document is Authorized for Use Only by Paul Arias (parias@ariasandarisainc.com) Copying and Posting is an infringement of Copyright. Please contact Paul Arias for additional copies