370 F. Supp. 3d 302
D. Conn.2019Background
- Plaintiffs are Medicare beneficiaries (class action) who were placed on "observation status" (Medicare Part B) rather than admitted as inpatients (Medicare Part A) and thus in many cases lost Part A benefits such as SNF coverage after a 3-day inpatient stay.
- The case challenges CMS/Secretary practices for inpatient/observation determinations and the lack of any beneficiary administrative hearing to contest that status as a Fifth Amendment Due Process deprivation; litigation has spanned appeals and remand from the Second Circuit.
- CMS implemented the Two-Midnight Rule (Oct. 2013; amended 2016, 2018) stating inpatient admission is generally appropriate when the physician expects a stay crossing two midnights; CMS reviewers (QIOs) use guidance, algorithms, and commercial screening tools to review claims.
- Plaintiffs argue the Two-Midnight Rule (and pre-2013 reliance on screening tools) "meaningfully channels" physician/hospital discretion and thus creates a protected property interest in inpatient status; defendant says decisions remain discretionary and no protected interest exists.
- The Secretary moved for summary judgment (on Mathews factors and post-2015 property-interest issues), to decertify the class, and to dismiss for lack of jurisdiction. The court denied all three motions and narrowed but retained the class pending further case-management briefing; trial was ordered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Two-Midnight Rule (and related screening tools) creates a protected property interest in inpatient admission | CMS guidance, QIO algorithms, and use of screening tools effectively fix criteria and constrain physician judgment, so beneficiaries have a legitimate entitlement to inpatient status | The Rule requires physician "clinical judgment" based on complex medical factors; discretion defeats a property interest | Court: triable issue exists — record permits a reasonable factfinder to conclude the Rule and implementation "meaningfully channel" discretion and can create a property interest |
| Whether due process requires an administrative hearing (Mathews v. Eldridge balancing) | Beneficiaries face substantial private interests (large SNF costs), systemic incentives bias hospitals toward observation, and additional review would likely reduce erroneous deprivations | Government burden and administrative costs of creating beneficiary appeals outweigh benefit; risk of error is low under existing procedures | Court: cannot resolve on summary judgment — genuine disputes of material fact on the Mathews factors require trial |
| Class certification (standing, commonality, typicality) | Class-wide relief appropriate; harms and lack of appeals are common; injury alleged across many beneficiaries | Class contains members lacking Article III injury (some save money as outpatients); heterogeneity undermines commonality/typicality | Court: denied decertification but narrowed the class to (1) beneficiaries without Part B at hospitalization and (2) those who stayed ≥3 days in hospital but were admitted as inpatients for <3 days; noted possible need for subclasses and ordered briefing |
| Article III jurisdiction — traceability/redressability/mootness | Procedural deprivation traceably caused by Secretary (CMS) practices; procedural relief could prompt reconsideration and meaningful redress; claims not moot for class members | Admission decisions are made by hospitals/physicians; Secretary lacks authority to force admissions or retroactive Part A payment; some claims moot after regulatory changes | Court: plaintiffs have met the relaxed redressability standard for procedural rights; disputes of fact exist as to traceability and redress; motions to dismiss for lack of jurisdiction denied |
Key Cases Cited
- Barrows v. Burwell, 777 F.3d 106 (2d Cir. 2015) (remanded to assess whether federal standards effectively fixed admission criteria and created a protected property interest)
- Mathews v. Eldridge, 424 U.S. 319 (1976) (three-factor balancing test for what process is due)
- Tolan v. Cotton, 572 U.S. 650 (2014) (summary judgment standard; view evidence in plaintiff's favor)
- Kraemer v. Heckler, 737 F.2d 214 (2d Cir. 1984) (Medicare due-process context; government-created procedures can create state-action and due process concerns)
- Sosna v. Iowa, 419 U.S. 393 (1975) (named-plaintiff mootness does not necessarily moot certified class)
- Fleury v. Clayton, 847 F.2d 1229 (7th Cir. 1988) (inclusion of discretionary criteria in a standard does not preclude the existence of a protectable property interest)