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Select inpatient to observation patient status changes can be scrutinized now, and even as far back as 2009.

On Oct. 11, 2024, the Centers for Medicare & Medicaid Services (CMS) issued a  which, in certain circumstances, allows people in traditional Medicare to appeal a hospital鈥檚 reclassification of their stay from inpatient to outpatient observation (OBS) resulting in a denial of coverage for the hospital stay under Part A.

Background: A class action case (Alexander v. Azar) filed in 2011 sought appeal rights for beneficiaries who are initially determined to be inpatients, then their patient status is changed to an OBS.

Ruling: In March 2020, a U.S. District Court directed the U.S. Department of Health and Human Services (HHS) secretary to create appeal processes for certain situations. The government appealed, but in January 2022 a U.S. Court of Appeals affirmed the earlier decision.

What It Means for Patients

Here鈥檚 how the change could affect eligible beneficiaries with traditional Medicare:

• As of Feb. 14, 2025, patients who disagree with a hospital鈥檚 decision to reclassify their stay can file for an expedited appeal prior to discharge from the hospital.
• As of Jan. 01, 2025, patients can file an appeal for stays that began on or after January 1, 2009, through the rule implementation date of February 14. The deadline for filing these appeals is January 2, 2026.

The rule applies to eligibility beneficiaries who:

• Either had, or will have, Part A benefits denied for hospital inpatient services and skilled nursing facility (SNF) care as a result of the hospital鈥檚 reclassification, or

Were reclassified and did not have Part B coverage at the time of hospitalization.

Know the Details

There are three types of appeals:

1. Expedited Appeal

While still in the hospital, eligible beneficiaries can file with a Beneficiary & Family Centered Care-Quality Improvement Organization (BFCC-QIO) when they disagree with the hospital鈥檚 decision to reclassify their stay.

To qualify for an expedited appeal, the reclassification must happen while the patient is still in the hospital and either:

• The patient has Medicare Part B and their hospital stay was at least 3 days, or
• The patient doesn鈥檛 have Part B.

Essential: The facility must issue the Medicare Change of Status Notice (MCSN) to notify the patient of their expedited appeal rights.

After receiving the patient record from the hospital, the BFCC-QIO must:

• Determine whether the inpatient admission satisfied the relevant criteria for Part A coverage, and

Render their determination within one day for appeals received before patient discharge.

       2. Standard Appeal

This appeal applies to beneficiaries eligible for an expedited appeal, but who file outside of the expedited timeframes.

Be aware: This can happen after the processing of the hospital鈥檚 Part B outpatient claim or a denial of SNF coverage.

Know this: The process follows similar procedures to expedited appeals but with longer timeframes to file and for a BFCC-QIO decision.

        3. Retrospective Appeal

This appeal if for status changes occurring before the implementation of the above prospective appeals.

Consistent with the court order, the beneficiary must demonstrate eligibility and show that the initial inpatient admission satisfied the relevant criteria for Part A coverage.

Know this: CMS will use an 鈥渆ligibility contractor,鈥� (an existing appeals contractor) to serve as a single point of contact for incoming retrospective requests and as a gatekeeper in determining eligibility for an appeal.

Timeframe: Beneficiaries have 365 calendar days from the rules implementation date to gather any related documentation and file a request. Once eligibility determination is made the appeal will generally mirror existing .

Exception: If Medicare does not receive the retrospective appeal before the deadline, the patient can still get more time if there is 鈥済ood cause.鈥�

Causes preventing beneficiaries from contacting the reviewer include:

• Their serious illness
• A death or serious illness in their immediate family
• Important records destroyed/damaged by fire or other event 鈥� hurricane, earthquake, flood
• The patient didn鈥檛 understand how to file or was given wrong information on how to appeal

Tip: If CMS gets a late appeal request and it doesn鈥檛 include a reason for being late, it won鈥檛 be accepted.

The bottom line: A beneficiary with original Medicare may be eligible for a retrospective appeal if they meet all these requirements:

• Patient was admitted to the hospital as an inpatient on or after January 1, 2009, and the hospital changed the patient鈥檚 status to outpatient during the stay
• Patient got observation services of any duration in the hospital after the hospital changed the status to outpatient
• Patient got an MSN for outpatient services for the hospital stay or a Medicare Outpatient Observation Notice (MOON) for observation services during their hospital stay. Click  for more information on the MOON
• This is the first time the patient is appealing for Medicare to cover services related to the hospital stay or if they did appeal, a final decision was made after September 4, 2011

And, as with an expedited appeal, one of these statements also applies: 

• They didn鈥檛 have Medicare Part B (medical insurance) while in the hospital.
• They stayed in the hospital for three or more consecutive days, but were an inpatient for less than three days, and they were admitted to a SNF within 30 days after they left the hospital.

Understand Appeals Decisions

Some appeals are decided in the patient鈥檚 favor. If the review determines the hospital stay met the coverage requirements for a Part A inpatient stay, the hospital may choose to submit a Medicare Part A claim for payment, but they are not required to do so. 

If the hospital:

1. Submits a Part A claim: The hospital must refund any payments received for the outpatient services (including any coinsurance and deductibles collected).

Good to know: Patients will have to pay their Part A inpatient coinsurance and/or deductible (if applicable).

• Doesn鈥檛 submit a Part A claim and the patient had Medicare Part B when hospitalized for the services in the appeal: The hospital may decide not to submit a Part A claim. The hospital may keep the outpatient payment received and not refund any payments, including any coinsurance and/or deductible. The patient won鈥檛 need to pay anything else to the hospital.
  • If the patient didn鈥檛 have Medicare Part B, the hospital must refund any payments received from the patient (or any company that paid them) even if the hospital chooses not to submit a Part A claim for payment to the program.

Important: : If a patient is entitled to a refund from the hospital, they should receive it within 60 days of the hospital getting the decision.

2. If there were SNF services included in the patient鈥檚 appeal, the Medicare Administrative Contractor (MAC) decides whether some or all of the services appealed are covered and notifies the SNF that they must refund payments they received from patients or family members for the covered services.

Note: This may include out-of-pocket payments made by individuals who are not biologically related to the beneficiary (e.g., a close family friend or former spouse).

Important: Patients should be issued a refund within 60 days of the SNF getting the decision.

Good to know: If the SNF submits a Part A claim for payment, the patient will have to pay the applicable coinsurance and/or deductible (if any).

Tip: CMS advised additional information will be available soon for providers regarding the submission of new claims following a favorable appeal decision.

Some appeals are not decided in the patient鈥檚 favor. In these cases, notification will be made by the MAC if they determine that the patient鈥檚 services didn鈥檛 meet the coverage requirements for a Part A inpatient hospital stay (or the coverage requirements for SNF services).

Be aware: Patients will be able to file a second-level appeal with a qualified independent contractor (QIC). The decision letter will instruct the patient how to file this next-level appeal.

Remember: Strong utilization review processes can limit exposure. Ensure best practices are being followed and staff fully understands these new appeal rights.

Find more details on patient status appeals at .

Patricia Zubritzky, BS, CRCE-I, Contributing Writer, Pittsburgh