MCCM News

Due to the increasing number of patients admitted to hospitals as outpatients on "observation status,” the NOTICE Act, passed and signed into law by President Obama and effective on August 6, 2016, is aimed at ensuring that hospitals properly notify patients of their outpatient or inpatient status. 

Observation Status:  The Controversy

            The Center for Medicare and Medicaid Services ("CMS") describes the issue as patients who are admitted to the hospital, but classified as receiving "observation services" as outpatients.  The care that outpatients on observation status receive is often no different than the care received by inpatients. The observation status does not influence the tests, medications, or overall care the patient receives as it does not override physician judgment.  CMS believes that patients are put on observation status as an intermediate step after arriving to an emergency room, then requiring  treatment and monitoring to determine if inpatient admission is necessary.

Controversy over the observation status arises when patients or family members are not aware of an observation status designation or its financial impact.  When a patient is assigned outpatient observation status, there are serious implications both for private payment of the patient’s hospital stay and for Medicare coverage of any subsequent rehabilitation in a skilled nursing facility. The latter tends to present a more significant concern as the Medicare inpatient deductible is usually more than a cost-sharing private pay. 

• If a patient meets the criteria for having a three-day acute qualifying hospital admission, their first 20 days of rehabilitation in a skilled nursing facility after hospitalization are fully covered by Medicare Part A and days 20-100 are subject to a deductible. 

• If a patient is classified as an outpatient on observation status, the same rehabilitation in a skilled nursing facility after hospitalization is not covered by Medicare and could result in significant cost to the patient.   

NOTICE Act

            The NOTICE Act requires hospitals to give patients written and verbal notice of their observation or other outpatient status to all who are assigned this status for over 24 hours. The notice must be provided within 36 hours of discharge and explain the reason for the status designation and its financial implications. 

• CMS has responded to the NOTICE Act by requiring hospitals to provide the mandatory notice via a new standardized form known as the Medicare Outpatient Observation Notice ("MOON"). 

• Assignment of observation status must be the result of a physician's decision that the patient does not currently require inpatient services.

• Hospitals are required to provide the MOON only to patients eligible for Medicare, and for whom the hospital is billing Medicare for the patient’s observation stay. 

            Concerns regarding the MOON include patients receiving inadequate explanations of status determinations, the availability and expense of appeals, and increased observation status determinations as many long-term outpatients were previously not assigned observation status solely due to hospitals not billing Medicare for observation hours.

Action Items

• Starting on August 6, 2016, be aware of the new rules and notice the MOON should you or a loved one be hospitalized.

• To avoid a large private pay bill or long and expensive appeal, incorrect status determinations should be immediately addressed in the hospital with every effort made to overturn them.

Please contact Daniel S. Williford at 585.512.3511 or dwilliford@mccmlaw.com for more information or assistance with Medicare issues.