Healthcare Event

On January 25, 2022, the U.S. Court of Appeals for the Second Circuit affirmed the ruling in Barrows v. Becerra that the U.S. Secretary of Health and Human Services (HHS) violated the due process rights of a certified nationwide class of Medicare patients. These individuals were reclassified from “inpatient” to “observation” status by a hospital’s utilization review committee (URC) without being provided an administrative review process that would have allowed them to challenge that reclassification determination.

The negative financial impact on the Medicare Part A patients in this case who were reclassified from “inpatient” to “observation” was significant because Medicare Part A applies to hospitalization expenses. Outpatient services, including observation, are usually covered under Medicare Part B, which requires a monthly premium and potential copayments that could equal more than an inpatient deductible.

This ruling could have a tremendous impact on hospitals, skilled nursing facilities, and other Medicare providers. Because the case decision requires the HHS Secretary to create a due process format for when a Medicare recipient disagrees with a hospital’s reclassification determination, such decisions may be challenged by the patient, the Medicare provider on behalf of the patient, or the provider itself.   

The Second Circuit granted a temporary stay that will allow the HHS Secretary to appeal the decision up until late April 2022, but the Secretary has not yet done so. The HHS also has not shared what the due process format will be that URCs must have in place for Medicare recipients to appeal reclassification determinations or the procedures for providers to challenge determinations. Due to the often significant payment difference that hospitals receive for a Medicare inpatient stay versus an outpatient stay, the number of provider challenges may be significant and these cases may go back to January 1, 2009, and affect hundreds of thousands of beneficiaries.

There are many unknowns regarding this ruling and how hospitals, skilled nursing facilities, and other Medicare providers will need to respond to it. While we wait for more guidance to be issued, hospital URCs should:

  • Meet on a regular basis
  • Conduct sample screenings to identify areas for improvement
  • Make sure that utilization review staff are well versed on Medicare conditions of participation as well as other rules and regulations 

If you need assistance addressing any URC concerns, we can help. BKD’s Health Care Performance Advisory Services is available to assist you! For more information, reach out to an advisor or submit the Contact Us form below.

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