Bagnall v. Sebelius

No. 11-1703 (D.Conn.), filed November 3, 2011.

Issue: Whether the Secretary’s policy of allowing hospitalized Medicare beneficiaries to be placed in “observation status,” rather than formally admitting them, deprives them of their Part A coverage in violation of the Medicare statute, the Administrative Procedure Act, the Freedom of Information Act, and the Due Process Clause.

Relief sought: Declaratory and injunctive relief to end and correct the deprivation of Part A coverage by the use of observation status, and to provide notice and appeal rights for those placed in observation status.

Updated: October 13, 2016

Status: Seven Medicare beneficiaries or their estates filed the complaint and a motion for certification of a nationwide class on November 3, 2011. Plaintiffs have submitted written discovery, but that has been put on hold while the motion to dismiss is pending. Seven more plaintiffs have intervened.

In January 2013, the district judge transferred the case to a newly appointed district judge. That judge held an oral argument on the motion to dismiss on May 3, 2013.  On September 23, 2013, although the court denied the government’s motion to dismiss on jurisdictional grounds, it  granted the motion to dismiss for failure to state a claim and dismissed the case.  2013 WL 5346659. On the substantive argument, it held that the prior decision in the Landers case effectively undercut plaintiffs’ contentions.  The court also rejected several technical challenges to the policy itself.  Finally, the court rejected the challenges to the insufficient notice and hearing rights for beneficiaries placed on observation status. The court held that the plaintiffs lacked standing to challenge the content of the notices, that the hospitals (not the Secretary) were responsible if notices were not provided, and that the protections of due process did not apply because the beneficiaries lacked a property interest. In addition, the pending motions for class certification and to stay discovery were denied as moot.

Plaintiffs appealed, but limited the appeal to the issue of the right to an effective notice and review procedure for beneficiaries placed on observation status. Both the AMA and the American Health Care Association filed amicus briefs in support of plaintiffs, and the American Hospital Association filed an amicus brief that was neutral as to the parties.

On January 22, 2015, after full briefing and oral argument, the panel affirmed on statutory grounds, but vacated the district court’s dismissal of the due process claims.  Barrows v. Burwell, 777 F.3d 106 (2d Cir. 2015). The Court of Appeals concluded that the district court should not have accepted as true the Secretary’s statement that the decision to admit is up to the doctor’s discretion. The case was sent back to the district judge to determine whether plaintiffs had a property interest in being treated as inpatients, as the existence of a property interest is a necessary condition for due process protections to attach.

Plaintiffs’ discovery requests produced 8,000 pages of documents.  During the fall and winter of 2015-2016, their counsel conducted numerous depositions around the country of personnel from CMS, hospitals, and contractors. The parties’ briefing of the cross-motions for summary judgment on the question of whether beneficiaries have a property interest in being treated as an inpatient commenced in mid-June and is expected to end on November 2. In addition, the Secretary moved in the alternative to dismiss the complaint on the ground that plaintiffs had not met the other two components of a due process claim. It is expected that the court will hold oral argument on the motions in the late fall or early winter.