Barrows v. Burwell
777 F.3d 106
| 2d Cir. | 2015Background
- Plaintiffs are Medicare beneficiaries who were placed in “observation status” (treated as outpatients under Part B) rather than formally admitted as inpatients (covered under Part A), resulting in higher out‑of‑pocket costs and loss of SNF coverage.
- Complaint alleged increased use/duration of observation status driven by CMS billing rules and Recovery Audit Contractor reviews, and that hospitals apply fixed screening tools rather than physician judgment.
- Plaintiffs sued the HHS Secretary in a putative class action seeking injunctions: end observation‑status placement, require written notice of observation status and consequences, and establish expedited administrative review.
- District Court dismissed the complaint in full; plaintiffs appealed only claims 6 and 7, which asserted violations of the Medicare Act and the Fifth Amendment Due Process Clause for failure to provide expedited notice/review.
- Second Circuit affirmed dismissal of the statutory (Medicare Act) claims but vacated dismissal of Due Process claims, concluding the District Court improperly resolved a factual dispute about whether admission decisions are discretionary medical judgments or governed by fixed CMS criteria.
- Court remanded for limited discovery solely on whether plaintiffs possess a protected property interest in inpatient admission (i.e., whether CMS/its tools meaningfully channel hospital/physician discretion).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Medicare Act requires expedited notice or review for observation‑status placements | Barrows: statute/regulations and MSNs are inadequate; beneficiaries entitled to expedited notice and administrative review when placed on observation status | Burwell: statute/regulations (including MSN rules and §1395ff procedures) do not entitle beneficiaries to expedited notice/review for initial observation placements; hospitals, not Secretary, provide notices | Held: Statutory claim dismissed — plaintiffs lack a plausible statutory right to the relief sought under Medicare law |
| Whether plaintiffs have a property interest (Due Process) in inpatient admission | Barrows: CMS and hospitals use objective, fixed screening tools and billing incentives that effectively channel discretion, creating an entitlement to inpatient status and thus a protected property interest | Burwell: Admission is a "complex medical judgment" vested in treating physicians; no fixed entitlement exists, so no property interest | Held: Dismissal vacated — factual dispute exists; plaintiffs plausibly alleged that CMS meaningfully channels discretion, so limited discovery is required to decide property‑interest question |
| Whether District Court could resolve the property‑interest question on a Rule 12(b)(6) motion | Barrows: the complaint’s factual allegations must be taken as true and permit inquiry into whether fixed criteria exist | Burwell: relied on Medicare Policy Manual language to treat admission as discretionary medical judgment | Held: District Court erred by making a factual finding at motion‑to‑dismiss stage; must permit limited discovery |
| Remedy/next steps after remand | Barrows: discovery should test whether objective CMS criteria/policies create entitlement; if so, evaluate due process adequacy | Burwell: discovery should confirm that admission decisions remain discretionary and support dismissal | Held: Remand for limited discovery on property interest; subsequent proceedings to address state‑action and adequacy of process as necessary |
Key Cases Cited
- Estate of Landers v. Leavitt, 545 F.3d 98 (2d Cir. 2008) (CMS definition of inpatient treated as persuasive under Skidmore)
- Skidmore v. Swift & Co., 323 U.S. 134 (1944) (weight given administrative interpretations depends on persuasiveness)
- Kapps v. Wing, 404 F.3d 105 (2d Cir. 2005) (fixed, objective eligibility criteria can create a protected property interest)
- Mathews v. Eldridge, 424 U.S. 319 (1976) (framework for assessing required procedural protections)
- Sealed v. Sealed, 332 F.3d 51 (2d Cir. 2003) (no entitlement where scheme authorizes discretion without requiring a specific outcome)