Medicare: Beware of hidden charges for "observation services"

In Michigan, most adults with developmental disabilities are eligible for Medicaid as long as they meet the eligibility criteria based on the individual’s (not the family’s) income and other financial assets. In addition, when a parent of a “Disabled Adult Child” (or DAC) retires, dies, or is receiving Social Security disability benefits, the DAC is also eligible for social security benefits including Medicare. (This can be complicated, so take the time to find out more about eligibility criteria and how to apply for government disability benefits, starting with the Website for the U.S. Social Security Administration .) 

According to the Social Security Website on Benefits for a Disabled Child , “An adult disabled before age 22 may be eligible for child's benefits if a parent is deceased or starts receiving retirement or disability benefits. We consider this a ‘child’s’ benefit because it is paid on a parent's Social Security earnings record.”

My son Danny has had multiple emergency room visits and hospitalizations over the last 6 months. After one visit to the ER he was placed in a hospital room for observation for two days. This was the first I had heard of this category of care. Because of the severity of Danny’s disabilities and his inability to work or pay for services, he is not billed for hospital or emergency room care - everything so far has been covered by Medicaid and Medicare.

It is possible, however, for people covered by Medicare to be charged for services they did not know they would be responsible for ahead of time.

A class action lawsuit brought by Justice in Aging is proceeding through the courts to determine the appeal rights of patients who have been charged for “observation services”, often without their knowledge, and without the right to appeal the charges.

This is from a recent Justice in Aging email:

Nancy Niemi was hospitalized for 39 days after a visit to an emergency room. She’s 84-years-old and eligible for Medicare. The hospital, however, categorized her as an outpatient receiving “observation services” for her entire stay. Medicare covers hospital care through an inclusive payment under Part A if the stay is classified as inpatient, but patients may incur unexpected cost sharing if the stay is classified as “outpatient” observation covered under Part B. Ms. Niemi was now in debt for thousands of dollars for her entire 39-day stay, and, in addition, Medicare does not permit beneficiaries to appeal when they are classified as receiving observation services when they are in the hospital, so she had no way to challenge the lack of coverage.

Due to a federal court decision issued last week, Nancy Neimi is now a member of a nationwide class of hospital patients who may gain the right to appeal their placement on observation. Hospitals commonly classify patients under observation, and, until March of this year, often without their knowledge. This practice has left many older adults and others with thousands of dollars in surprise bills not just for the hospital stay, but also medicine and other services received while classified as under observation. Class members could number in the hundreds of thousands. One study found that, in 2009 alone, 918,180 Medicare beneficiaries experienced observation stays.

Justice in Aging filed the original lawsuit (now named Alexander v. Price) along with the Center for Medicare Advocacy in 2011. The case was initially dismissed, but plaintiffs appealed to the 2nd Circuit and prevailed. The case is now going forward on the Due Process claim. Specifically, the plaintiffs allege that Medicare must allow beneficiaries to challenge the decision they are only receiving observation services. The class certification order was issued on July 31, 2017 and can be read here.

If you have a client who you think may be a member of the class, you can submit their story here. Otherwise, no action is required at this time. We’ll keep you updated on the case as it moves forward.