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Alexander v. Azar Reappears; Condition Code 44 appeals could be back in court.

Author’s Note: Thanks to the Center for Medicare Advocacy for alerting me to this case update.

Many of you may recall a class-action lawsuit that was filed in 2011 on behalf of Medicare beneficiaries who were hospitalized as outpatients with observation services for more than three days and then transferred to a skilled nursing facility (SNF) without Part A coverage. Originally called Alexander v. Sebelius, and soon to be called Alexander v. Becerra, the ruling decision in March 2020 included a provision that would require the Centers for Medicare & Medicaid Services (CMS) to develop a formal appeal process for patients who are formally admitted as inpatients, but then changed to outpatient status via the Condition Code 44 process.

After a delay formulating a response, CMS this month filed a stay with the U.S. District Court, asking the Court to allow them to delay implementation of the appeal process until their appeal is heard and decided. In its argument, CMS noted that in order to develop such an appeal process, they would be required to develop regulations that would require formal rulemaking. CMS stated that “the rulemaking would need to address a number of significant issues that the Court’s order does not address, including, but not limited to, questions of when appeal rights would attach, how notice would be provided to beneficiaries of their right to an appeal, the standards to apply to the appeals, and the role the provider of services would play in each appeal process.”

They then go on to explain that CMS would then have to develop contracts to handle the administrative appeals, and instructions, estimating that this process would take over a year and would require an appropriation from Congress, without which CMS would not have the resources to complete the work. CMS went on to note that if they were to implement the process and then win on appeal, there would be “a serious risk of confusion to the public” if their court appeal is successful and the new appeal procedure would then be terminated.

The prospect of another appeal process is also most likely not appealing to most case managers and physician advisors. The advent of the two-midnight rule in 2013 has virtually eliminated the long outpatient stays that led to the original lawsuit, so any patient today who is changed from inpatient to outpatient via the Condition Code 44 process most likely would never warrant a three-day hospital stay and have the regulatory requirements to qualify for a Part A SNF stay. Furthermore, the patient would remain hospitalized during the appeal, and given the low odds of success, based on appeal success rates for current expedited appeals, the hospital would receive no payment for that additional care delivered during the two to three extra days of hospital stay – and medical necessity would be lacking for continued physician visits. The patient would also be exposed to the continuing risks of hospitalization, with little benefit.

As expected, the Center for Medicare Advocacy disagrees, noting that “the Center and its co-counsel who represent the class will oppose the stay and will continue to press for relief for class members as soon as it can be provided. The Center is also opposing the appeal of the trial court’s decision at the Second Circuit.”

In this author’s opinion, while providing financial relief to the many class members who did have to pay for a SNF stay after a hospital stay of over three days as outpatient in the past is well-deserved, adding a new appeal process for Condition Code 44 patients is not warranted, and will create more confusion and pain than relief. As CMS said in the 2014 Inpatient Prospective Payment System (IPPS) Final Rule, no patient in a medically necessary hospitalization (without delays for convenience or social reasons) should pass the second midnight without being admitted as an inpatient. If that mandate is followed, and patients are kept aware of their status, adding another appeal process will benefit no one. On the other hand, the continued efforts to eliminate the 1960s-era requirement for a three-day inpatient stay to gain access to the Part A SNF benefit should continue, as no one questions its obsolescence.  


Ronald Hirsch, MD, FACP, CHCQM, CHRI

Ronald Hirsch, MD, is vice president of the Regulations and Education Group at R1 Physician Advisory Services. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute-care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the Advisory Board of the American College of Physician Advisors, a member of the American Case Management Association, and a Fellow of the American College of Physicians. Dr. Hirsch is a member of the RACmonitor editorial board and is regular panelist on Monitor Mondays. The opinions expressed are those of the author and do not necessarily reflect the views, policies, or opinions of R1 RCM, Inc. or R1 Physician Advisory Services (R1 PAS).

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