Barrows v. Becerra

24 F.4th 116

Lee BARROWS, on behalf of herself and all others similarly situated, Michael Savage, on behalf of himself and all others similarly situated, George Renshaw, on behalf of himself and all others similarly situated, Shirley Burton, on behalf of herself and all others similarly situated, Denise Rugman, on behalf of herself and all others similarly situated, Ann Pelow, Executor of the Estate of Richard Bagnall, James Mulcahy, Executor of the Estate of Sarah Mulcahy, Plaintiffs-Appellees,

Brenda Hardy, Executrix of the Estate of Loretta Jackson, Gary Goodman, Estate of Dorothy Goodman, Christina Alexander, Representative of the Estate of Bernice Morse, Mary Smith, Representative of the Estate of Martha Leyanna, Peggy Leider, for Irma Becker, William Hodges, for Louis Dziadzia, Michael Holt, Executor of the Estate of Charles Holt, Intervenors-Plaintiffs-Appellees,

Richard Bagnall, on behalf of himself and all others similarly situated, Sarah Mulcahy, on behalf of herself and all others similarly situated, Plaintiffs,

Jessie Ruschmann, Representative of the Estate of Frederick Ruschmann, Bernice Morse, Frederick Ruschmann, Louis Dziadzia, Loretta Jackson, Martha Leyanna, Charles Holt, on behalf of themselves and all others similarly situated, Irma Becker, Dorothy Goodman, on behalf of herself and all others similarly situated, Intervenors-Plaintiffs,

v.Xavier BECERRA, Secretary of Health and Human Services, Defendant-Appellant.

No. 20-1642-cv

August Term 2021

United States Court of Appeals, Second Circuit.

Argued: October 6, 2021

Decided: January 25, 2022

Alice Bers (Wey-Wey Kwok, on the brief), Center for Medicare Advocacy, Willimantic, CT; David J. Berger, Steven Guggenheim, on the brief, Wilson Sonsini Goodrich & Rosati, Palo Alto, CA; Regan Bailey, Carol Wong, on the brief, Justice in Aging, Washington, D.C., for Plaintiffs-Appellees and Intervenors-Plaintiffs-Appellees

Adam C. Jed (Michael S. Raab, on the brief), Attorneys, Appellate Staff, for Brian M. Boynton, Acting Assistant Attorney General, Civil Division, United States Department of Justice, Washington, D.C., for Defendant-Appellant

M. Geron Gadd, Kelly Bagby, William Alvarado Rivera, on the brief, AARP Foundation, Washington, D.C.; Kasey Considine, on the brief, Disability Rights Connecticut, Hartford, CT, for amici curiae AARP, AARP Foundation, National Disability Rights Network, and Disability Rights Connecticut

Erin G. Sutton, on the brief, American Medical Association, Chicago, IL, for amici curiae The American Medical Association and Connecticut State Medical Society

James F. Segroves, on the brief, Reed Smith LLP, Washington, D.C., for amicus curiae The American Health Care Association

Before: Walker, Calabresi, and Cabranes, Circuit Judges.

John M. Walker, Jr., Circuit Judge:

The plaintiff-appellee class members are Medicare Part A beneficiaries who are formally admitted to a hospital as "inpatients" before their subsequent reclassification as outpatients receiving "observation services." Plaintiffs brought this suit alleging, inter alia , that defendant-appellant Xavier Becerra, the Secretary of the United States Department of Health and Human Services ("HHS"), violates their due process rights by declining to provide them with an administrative review process for the reclassification decision. Following a bench trial, the United States District Court for the District of Connecticut (Michael P. Shea, J .) entered an injunction that ordered the creation of such a process. On appeal, the Secretary challenges: (1) the finding that the plaintiff class had standing, (2) the certification of the plaintiff class, and (3) the conclusion that plaintiffs’ due process rights are violated by the current administrative procedures available to Medicare beneficiaries. For the reasons that follow, we find no merit in these challenges. We therefore AFFIRM .

BACKGROUND

This eleven-year litigation stems from the different ways in which a Medicare beneficiary may be classified when she stays at a hospital. Whether a hospital classifies her as an inpatient or an outpatient has major consequences in terms of the coverage provided by Medicare. As a general matter, an inpatient's hospital and post-hospital extended care is eligible for coverage under Medicare Part A, while that of an outpatient is not. Accordingly, a hospital's decision to reclassify a Medicare beneficiary from an inpatient to an outpatient in some cases will have a significant negative impact on the amount of care a patient receives that Medicare will pay for. The plaintiffs here challenge the lack of a process to appeal that decision.

Given the underlying statutory complexities presented by this case, we begin by explaining the operation and costs related to both inpatient services that are covered under Medicare Part A and outpatient services that are not.

I. Statutory Overview

Medicare is a federally funded health insurance program for the elderly. One of its plans, Medicare Part A, "provides basic protection against the costs of hospital, related post-hospital, home health services, and hospice care."¹ More specifically, Part A covers "inpatient hospital services," which includes both services "furnished to an inpatient of a hospital" and "post-hospital extended care," such as skilled-nursing facility ("SNF") care "after [a patient's] transfer from a hospital in which [she] was an inpatient for not less than 3 consecutive days."² Although "inpatient" is undefined in the Medicare statute, we have held that only a Medicare beneficiary who is "formally admitted" to a hospital can qualify as such.³ Many Part A beneficiaries do not pay a premium to participate in the program.⁴ However, when beneficiaries are admitted to the hospital as inpatients, they are responsible for paying an inpatient deductible.⁵

By contrast, Medicare Part B is a program that covers outpatient services.⁶ Those services can be provided both outside of a hospital setting, such as at a doctor's office, or within a hospital. The Centers for Medicare & Medicaid Services ("CMS"), a department of HHS that administers Medicare, defines a hospital outpatient as "a person who has not been admitted to the hospital as an inpatient" but receives services from the hospital.⁷ One form of outpatient services is referred to as "observation services."⁸ Observation services "include ongoing short term treatment, assessment, and reassessment before a decision can be made whether patients will require further treatment as hospital inpatients" or can be discharged.⁹ Observation services may include the same services that are also provided to inpatients.¹⁰

Unlike Part A, Part B is a supplemental program for which Medicare beneficiaries must pay a monthly premium in order to participate.¹¹ Part B beneficiaries who receive observation services in a hospital must make a copayment of 20% of the cost of the services.¹² Part B beneficiaries receiving observation services, in contrast to inpatients covered under Part A, are also responsible for the cost of self-administered medications and any SNF care following hospitalization.¹³

After a hospital treats a Medicare beneficiary, it submits a claim for reimbursement to Medicare. If a hospital admits a beneficiary as an inpatient but Medicare believes that person should not have been formally admitted, Medicare will not reimburse the hospital under Part A. If Medicare initially reimburses the hospital, but upon further review, finds the admission to have been erroneous, Medicare will seek to recover its payment from the hospital.¹⁴ A hospital can bill Medicare for observation services provided to a Part B beneficiary only after a physician has entered a formal observation order. Thus, if a hospital admits a patient as an inpatient and is later denied reimbursement by Medicare, it cannot reclassify the care provided to the patient as observation services and re-bill Medicare under Part B.¹⁵ Medicare has historically reimbursed hospitals at a higher average rate for Part A inpatient claims than for Part B observation services claims.

In reviewing a hospital's reimbursement submissions, CMS utilizes various private contractors to ensure that the claims are properly supported and payable under Medicare guidelines—that is, that a physician's order meets the coverage requirements for payment. In addition to their own clinical judgment, contractors may use commercial screening tools, manuals, or software, setting forth criteria for inpatient admissions, to identify claims for further review and to focus their efforts. And as a result of such reviews, CMS may subject hospitals to audits concerning their billing practices and may recoup past improper payments. Additionally, a hospital's inpatient claims can also be investigated by HHS's Office of the Inspector General and even by the Department of Justice. Finally, hospitals, but not plaintiff class members who, because of their reclassification never have a Part A claim submitted on their behalf to Medicare, may administratively appeal the denial of Part A reimbursement claims through a multi-level appeal system if CMS determines that an inpatient admission did not meet the criteria for Part A payment.¹⁶

II. Classification Procedures

During the class period, January 1, 2009 to date, guidance from CMS regarding who should be admitted as an inpatient in order to receive Part A coverage changed. Prior to 2013, CMS directed that "[p]hysicians should use a 24-hour period as a benchmark, i.e., they should order [inpatient] admission for patients who are expected to need hospital care for 24 hours or more, and treat other patients on an outpatient basis."¹⁷ Physicians were also advised that "the decision to admit a patient is a complex medical judgment" and were instructed to consider 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...