CMS Issues Proposed Rule on Appeals Process for Medicare Patients Placed on Observation Stay Status

The Centers for Medicare and Medicaid Services (CMS) released a proposed rule on December 27, 2023, to implement an order from the Federal district court for the District of Connecticut in Alexander v. Azar that requires HHS to establish appeals processes for certain Medicare beneficiaries who are initially admitted as hospital inpatients but are subsequently reclassified as outpatients receiving observation services during their hospital stay and meet other eligibility criteria. The proposed rule establishes both standard and expedited appeals for Medicare beneficiaries who are class members in Alexander v. Azar nationwide class action case originally filed in 2011. Beneficiaries included in the class are those who either had, or will have, Part A benefits denied for hospital inpatient services and Skilled Nursing Facility (SNF) care as a result of the hospital’s reclassification. The class also includes beneficiaries who did not have Part B coverage at the time of hospitalization.

1. Expedited Appeals: CMS is proposing in this rule an expedited appeals process for eligible beneficiaries who disagree with the hospital’s decision to reclassify their status while they are still in the hospital from inpatient to outpatient receiving observation services (resulting in a denial of coverage for the hospital stay under Part A). These beneficiaries would be able to file an appeal with a Beneficiary & Family Centered Care - Quality Improvement Organization (BFCC-QIO). The BFCC-QIO would independently review the beneficiary’s patient record to determine whether the inpatient admission satisfied the relevant criteria for Part A coverage. After receiving patient records from the hospital, the BFCC-QIO would render a determination within one day for timely requests.
2. Standard Appeals: CMS is also proposing a standard appeals process for eligible beneficiaries who do not file an expedited appeal that would allow them to pursue an appeal regarding the hospital’s decision to reclassify their status from inpatient to outpatient receiving observation services (resulting in a denial of coverage for the hospital stay under Part A). This proposed process would follow similar procedures to the expedited appeals process but with longer timeframes to file and for the BFCC-QIO to make decisions.

The proposed rule is open to public comments through February 26, 2024.