Further Center Comments on the NOTICE Act – June 2016

June 16, 2016

Andrew M. Slavitt
Acting Administrator
Centers for Medicare & Medicaid Services
Department of Health and Human Services
Room 445-G, Hubert H. Humphrey Building
200 Independence Ave., S.W.
Washington, D.C.  20201

Re: CMS-1655-P, Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2017 Rates; Quality Reporting Requirements for Specific Providers; Graduate Medical Education; Hospital Notification Procedures Applicable to Beneficiaries Receiving Observation Services; and Technical Changes Relating to Costs to Organizations and Medicare Cost Reports

Submitted electronically: http://www.regulations.gov

Dear Mr. Slavitt and CMS Colleagues:

The Center for Medicare Advocacy (Center) is a national, private, non-profit law organization, founded in 1986, that provides education, analysis, advocacy, and legal assistance to assist people nationwide, primarily the elderly and people with disabilities, to obtain necessary health care, therapy, and Medicare.  The Center focuses on the needs of Medicare beneficiaries, people with chronic conditions, and those in need of long-term care and provides training regarding Medicare and health care rights throughout the country.  It advocates on behalf of beneficiaries in administrative and legislative forums, and serves as legal counsel in litigation of importance to Medicare beneficiaries and others seeking health coverage.  These comments are based on our experiences talking with and representing hundreds of Medicare beneficiaries and their families who have been caught in observation status.

NOTICE Act

In proposed rules updating Medicare reimbursement to acute care hospitals,[1] the Centers for Medicare & Medicaid Services (CMS) announces how it will implement the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act).[2]  Effective August 6, 2016, the NOTICE Act requires that hospitals provide written and oral notice, within 36 hours, to patients who are in observation or other outpatient status for more than 24 hours.  The notice must explain the reason that the patient is an outpatient, not an inpatient, and describe the implications of that status both for cost-sharing in the hospital and for “subsequent eligibility for coverage” in a skilled nursing facility (SNF).[3] 

Observation Status

CMS describes the issue as “outpatients” receiving “observation services.” In reality, however, observation status is about patients in the hospital who receive medical and nursing care, tests, medications, food, and stay overnight, but are called outpatients. The Center refers to this issue as “outpatient observation status” because there are no hospital services that are distinctly “observation” and because these so-called outpatients generally receive care that is identical to the care received by an inpatient. 

As CMS has expressly acknowledged in prior notices in the Federal Register, a physician can order whatever medical care, tests, medications, and services a hospitalized patient needs, whether the patient is classified as an inpatient or an outpatient.  For example, in proposed revisions to its “two midnight rule,” CMS confirmed that the two-midnight rule “does not prevent the physician from ordering or providing any service at any hospital, regardless of the expected duration of the service” and “does not override the clinical judgment of the physician regarding the need to keep the beneficiary at the hospital, to order specific services, or to determine appropriate levels of nursing care or physical locations within the facility.”[4] 

When the care received by hospital inpatients and outpatients is indistinguishable, patients should have identical Part A coverage for their post-hospital care in a skilled nursing facility (SNF).  Time spent in a hospital, whether called inpatient or outpatient (including observation status) should satisfy the three-day hospital stay that is required for Medicare Part A coverage of a stay in a SNF.

Proposed Rules

In the proposed rules implementing the NOTICE Act, CMS announces that it will require hospitals to use a new standardized notice, the Medicare Outpatient Observation Notice (MOON), which it has submitted to the Office of Management and Budget for approval.  With respect to the statutory requirement that the notice explain the reason for the outpatient status, CMS says, “by definition,” the reason “will always be the result of a physician’s decision that the individual does not currently require inpatient services and observation services are needed for the physician to make a decision regarding whether the individual needs further treatment as a hospital inpatient or if the individual is able to be discharged from the hospital.”[5] 

CMS describes how observation status comes about: “Typically, observation services are ordered for individuals who present to the emergency department (ED) and who then require a significant period of treatment and monitoring to determine whether or not their condition warrants inpatient admission or discharge.”[6]  CMS insists that “in the majority of cases,” the decision about admission or discharge “can be made in less than 48 hours, usually in less than 24 hours.”[7]  It suggests that only “in rare circumstances” is a patient’s inpatient status changed to outpatient, under Condition Code 44.[8]

The MOON will not be required for all outpatients.  CMS proposes to require hospitals to give the MOON only to patients entitled to Medicare for whom they are billing Medicare for observation hours.[9]  Patients who do not have Medicare Part B will receive the MOON, even though their observation status stay or other outpatient stay in the hospital will not be covered by Medicare Part B because they do not have Part B.[10]  Patients in Medicare Advantage plans that do not require a three-day inpatient stay will also receive the MOON, even though the information in the MOON may not actually be applicable to them.  Medicare Advantage plans are permitted to waive the three-day requirement, and many do.

CMS states explicitly, in both the preamble[11] and in the proposed regulatory language,[12] that the NOTICE Act does not give patients any appeal rights. 

When it implemented the two-midnight rule, CMS cut Medicare reimbursement to hospitals by 0.2%, reflecting its expectation that there would be more inpatient stays as a result of the new rule.  The hospitals sued and challenged the cut in reimbursement.  In the proposed rules at issue here, CMS reports that “in light of recent review and the unique circumstances surrounding this adjustment,” it prospectively removes this reduction and retroactively restores full reimbursement to hospitals.[13]  This decision by CMS is an implicit acknowledgement that hospitals are continuing to classify patients as outpatients and that the two-midnight rule has not increased the number of hospitalized patients classified as inpatients.

Center for Medicare Advocacy Comments

1. The Center opposes the proposed rule’s refusal to require the hospital to explain in the MOON the specific reason the patient is being classified as an outpatient.  This decision is contrary to all other Medicare notices. 

In both traditional Medicare and Medicare Advantage, CMS requires health care providers and managed care plans to explain in detail the specific reasons why they believe Medicare coverage is not available.[14]  For example, in traditional Medicare, independent laboratories, home health agencies, hospices, physicians, practitioners, and suppliers must use the Advance Beneficiary Notice (ABN);[15] skilled nursing facilities must use the SNF ABN or one of several mandated denial notices;[16] and hospitals must use the Hospital-Issued Notice of Noncoverage.[17]  Medicare Advantage plans must issue a Notice of Denial of Medical Coverage (or Payment).[18]  Each of the forms includes a section in which the provider is required to explain the basis of the denial of coverage.  The proposed MOON is unique in its mandated use of a blanket statement, not specifically tailored to the individual patient, that fails to require an explanation of the basis for its decision that Medicare coverage is unavailable.

Moreover, CMS’s proposal not to require hospitals to provide information about the specific reason a patient is in observation status is contrary to the NOTICE Act and its legislative history.  The Act directs hospitals to explain “the status of the individual as an outpatient receiving observation services and not as an inpatient of the hospital or critical access hospital and the reasons for such status of such individual.”[19]  The legislation history confirms that hospitals must give patients “meaningful disclosure” of their status in the hospital.[20]  Requiring hospitals to use standardized language about the “reason” for a patient’s being placed on observation status, which CMS has declared by fiat, thwarts the purpose of delivering “meaningful” information to patients.

2. Only the MOON defines the coverage issue as non-appealable. 

Under federal regulations, “issues having a present or potential effect on the amount of benefits to be paid under Part A or Part B of Medicare”[21] are initial determinations that give rise to beneficiary appeal rights.[22]  Whether a patient is an inpatient or an outpatient is undeniably an issue “having a present or potential effect on the amount of benefits to be paid under Part A or Part B of Medicare.”  Nevertheless, CMS proposes to define the MOON as a notice that is not an initial determination,[23] carving out patient status in the hospital from actions that generate appeal rights.  CMS’s explanation for this decision is not persuasive; CMS simply declares that the NOTICE Act “does not afford appeal rights to beneficiaries regarding the notice provided pursuant to that statutory provision.”[24]

Just as Medicare beneficiaries can challenge a premature discharge from a hospital or contest other coverage determinations in the Medicare program, hospitalized patients who are called outpatients should be able to appeal to Medicare their placement on observation or other outpatient status.

3. The Center opposes the under-inclusive category of patients who will be given the MOON. 

CMS proposes that the MOON will be required only for patients whose hospitals code their “outpatient” Medicare bills as Observation Status. This decision affects many hundreds of thousands of people. The HHS Inspector General reported in 2013 that in 2012, 1.5 million patients had hospital stays that were classified as observation (because the hospital billed Medicare for observation hours) and another 1.4 million patients had long outpatient stays that were not coded as observation (because the hospital did not bill Medicare for observation hours).[25]  In other words, about half of all long-stay outpatients were not considered to be patients in observation status, but solely because the hospital chose not to bill Medicare for observation hours.  However, the consequences for patients remained the same. Whether or not the hospital billed Medicare for observation hours, the patient’s post-hospital care in the SNF was not covered because the patient was classified as an outpatient by the hospital.

CMS’s decision not to require the MOON for all outpatients is also contrary to the legislative history of the NOTICE Act, which requires hospitals to provide information to patients about whether they are inpatients or outpatients.[26]  CMS’s proposed decision simply exacerbates the arbitrariness of observation status.  Not only does it remain arbitrary whether patients are called outpatients or inpatients; it is now also arbitrary whether hospitals are required to give the MOON to outpatients.

4. CMS must assure that the MOON is only given to a patient who is able to understand it or to a person with legal authority to accept the notice on the patient’s behalf.

If a hospital gives the MOON to a patient who is in immense pain or otherwise not in a position to understand the notice, the notice is defective. The Medicare Claims Processing Manual, Ch. 30, sec. 40.3, explains that notices are valid only if given to patients who can understand them.[27]

40.3.4.3 – Capable Recipient

The contractor will not consider delivery of a notice to be properly done unless the beneficiary, or authorized representative, was able to comprehend the notice (i.e., they were capable of receiving notice). A comatose person, a confused person (e.g., someone who is experiencing confusion due to senility, dementia, Alzheimer’s disease), a legally incompetent person, a person under great duress (for example, in a medical emergency) is not able to understand and act on his/her rights, therefore necessitating the presence of an authorized representative for purposes of notice. A person who does not read the language in which the notice is written, a person who is not able to read at all or who is functionally illiterate to read any notice, a blind person or otherwise visually impaired person who cannot see the words on the printed page, or a deaf person who cannot hear an oral notice being given by phone, or could not ask questions about the printed word without aid of a translator, is a person for whom receipt of the usual written notice in English may not constitute having received notice at all (this is not an exclusive list). This may be remedied when an authorized representative has no such barrier to receiving notice. However, in the absence of an authorized representative, the notifier must take other steps to overcome the difficulty of notification. These may include providing notice in the language of the beneficiary (or authorized representative), in Braille, in extra large print, or by getting an interpreter to translate the notice, in accordance with the needs of the beneficiary or authorized representative to act in an informed manner. If the beneficiary was not capable of receiving the notice, the contractor will hold that the beneficiary did not receive proper notice, hold that the beneficiary is not liable, and will hold the notifier liable.

A notice not meeting these standards is defective, as the Manual explains, at p. 34, section 40.3.1.3, Defective Notice:

40.3.1.3 – Defective Notice

(Rev. 1, 10-01-03)

An ABN is not acceptable evidence if:

The notice is unreadable, illegible, or otherwise incomprehensible, or the individual beneficiary (or authorized representative) is incapable of understanding the notice due to the particular circumstances (even if others may understand);

The notice is given during any emergency, or the beneficiary is under great duress, or the beneficiary (or authorized representative) is, in any way, coerced or misled by the notifier, by the contents of the notice, and/or by the manner of delivery of the notice. (See §40.3.7);

5. Fifth, CMS significantly misstates when and how observation status is used. 

CMS repeats in the preamble its belief that use of Condition Code 44 (which allows hospitals to change a patient’s status from inpatient to outpatient) is rare[28] and that the decision to admit to inpatient status is usually made within 48 hours, and usually less than 24 hours.[29]  The Center’s experience is to the contrary.  

Testifying on behalf of the Society of Hospital Medicine before the House Ways and Means Committee, Subcommittee on Health, in May 2014, Ann M. Sheehy, MD, MS, University of Wisconsin School of Medicine and Public Health described hospitals’ increasing use of observation status and testified that hospitalists reported that they are asked to change the status of their patients “for 16% of the cases they see in an average day of clinical services.”[30]  Dr. Sheehy’s research documented that the time of day a patient presents to the hospital is a key determinant of the patient’s inpatient/outpatient status.[31] 

CMS reports in the preamble to these proposed rules that in 2014, 6142 hospitals and critical access hospitals submitted 977,000 claims for outpatient observation exceeding 24 hours.[32] 

The Center hears regularly from people all over the country whose status was changed from inpatient to outpatient or who remained in the hospital for multiple days (five and six days and more), all classified as outpatient, even after the “Two-Midnight Rule” was promulgated.[33]  For example, on May 17, 2016, I spoke with a nursing home administrator in Massachusetts who described a resident at her facility who had been in the hospital for six midnights in May 2016 – four midnights in the community hospital, coded as observation, and two midnights, coded as inpatient, in another acute care hospital to which the community hospital had him transferred.  Although hospitalized for six midnights, the resident did not have a three-midnight inpatient stay and, accordingly, he did not qualify for Medicare coverage of his stay at the SNF.

Concerns Regarding the MOON Notice Format

The draft MOON Notice[34] is a form notice that is likely to be unintelligible to all but the most sophisticated Medicare advocate.  It is not a “plain language written notice,”[35] as CMS recognizes is required by law.  The MOON is too long and it fails to give meaningful, comprehensible information to a patient about the consequences of being classified as an outpatient. 

The MOON is written at a 12.1 Grade level, according to the Felesch-Kincaid Readability test, although “the average American’s reading level proficiency is generally to be considered to be 5^th to 7^th.”[36] 

The form needs to inform a patient that

• He or she is currently classified as an outpatient and that this classification means that the patient (1) will have to pay out-of-pocket for medications received in the hospital, (2) will have to pay Part B co-payments for services provided by the hospital and Medicare will not pay if the patient goes to a skilled nursing facility after the hospital.
• The hospital may change the patient’s classification to inpatient, but if it does, the change becomes effective only at the time of the physician’s order.  If the patient then has three midnights in the hospital as an inpatient, Medicare Part A may pay for a stay in a skilled nursing facility.
• If the patient is in a Medicare Advantage plan, the plan may pay for a stay in a skilled nursing facility whether or not the patient was called an inpatient in the hospital.

Center for Medicare Advocacy Recommendations

1. CMS must assure that the MOON:

• Is written in plain language;
• Is given only to a patient (or his or her surrogate who has legal authority to receive notice on the patient’s behalf) who can understand it, given the patient’s medical condition;
• Explains the specific reason that the patient is in observation or other outpatient status (as opposed to inpatient status); and
• Gives the patient the right to appeal to Medicare for an official CMS determination of his or her status.

2.  CMS must not promulgate as a final rule subsection (u) under §405.926.  This is the proposed regulatory language saying that observation status is not an appealable issue.  The Center urges CMS to allow patients to appeal their classification as outpatients to Medicare. 
3. CMS has authority under existing law to define inpatient hospital care and to count all the time a patient spends in the hospital towards the prior hospital stay required for Medicare SNF coverage. We urge CMS to do so.

The Center also urges CMS to revise its Manuals so that all the time a patient spends in the hospital counts towards the three-day prior hospital stay required to cover subsequent skilled nursing facility care. At his request, the Center sent CMS Medicare Director, Sean Cavanaugh, a memorandum documenting the agency’s legal authority in 2014. We submitted similar information in 2015 in comments on proposed rules.  We reiterate these points below.

If CMS believes that it lacks authority to count all time in the hospital, however, the Center encourages CMS to support bipartisan bills now pending in Congress, H.R.1571 and S.843, the Improving Access to Medicare Coverage Act of 2015.[37]  The legislation, which counts all time spent by a patient in the hospital, is supported by a coalition of 29 national organizations representing physicians, nurses, other health care professionals, and advocates. 

While fully supporting the legislation, the Center notes that CMS has authority under existing law to count all time spent by a patient in the hospital for purposes of qualifying for Part A coverage in a SNF.  CMS policy created observation status and CMS action could adjust or rescind it.

Under a 2008 decision of the Second Circuit Court of Appeals, the Secretary of HHS has authority under the Medicare statute to include a hospital patient’s time in observation as part of inpatient time in the hospital for purposes of determining whether the patient qualifies for Part A coverage of a subsequent stay in a SNF.  Estate of Landers v. Leavitt, 545 F.3d 98 (2^nd Cir. 2008).  The Court recognized that neither the statute nor regulations define the word “inpatient” and that the Secretary defined inpatient in the Medicare Benefit Policy Manual as occurring after a formal physician order for admission.  Although the Court upheld the Secretary’s position in litigation – that only time in formal inpatient status may be counted toward satisfying the qualifying three-day inpatient requirement – it acknowledged that the Secretary had authority to change his interpretation of inpatient to include time spent in observation.  The Court wrote:

[W]e note that the Medicare statute does not unambiguously require the construction we have adopted.  If CMS were to promulgate a different definition of inpatient in the exercise of its authority to make rules carrying the force of law, that definition would be eligible for Chevron deference notwithstanding our holding today.

Landers, 545 F.3d at 112. 

In fact, CMS has recognized its authority to change the definition of inpatient.  In May 2005, CMS asked for public comment on whether time in observation should be counted towards satisfying the three-day inpatient requirement for Medicare Part A SNF coverage.[38]  In August 2005, CMS acknowledged that most commenters “expressed support for the idea that hospital time spent in observation status immediately preceding a formal inpatient admission should count toward satisfying the SNF benefit’s statutory qualifying three-day hospital stay requirement.”[39]    CMS reported that “some advocated eliminating the statutory requirement altogether.”[40] 

CMS analyzed the two recommendations separately.  With respect to repealing the three-day requirement entirely, CMS wrote, “we note that such an action would require legislation by the Congress to amend the law itself and, thus, is beyond the scope of this final rule.”[41]  Id.   With respect to counting time in observation towards the qualifying inpatient stay, CMS wrote, “we note that we are continuing to review this issue, but are not yet ready to make a final determination at this time.”[42] 

CMS correctly understood that it could not repeal the three-day statutory requirement by regulation but that it could count the time in outpatient status, if it chose.  It’s only stated reason for not counting observation time, despite widespread support of such a change from commenters, was that it wanted to continue reviewing the issue.  That review has now continued for eight [now almost 11] additional years.

Finally, CMS allows certain hospital stays to count in qualifying a patient for Part A-covered SNF care even when the hospital care is different from Part A-covered hospital care.

In the context of hospice services, CMS has recognized that “general inpatient care” in a hospital, although “not equivalent to a hospital level of care under the Medicare hospital benefit,” nevertheless qualifies a hospice beneficiary for Part A-covered SNF services.[43]

Similarly, a three-day stay in a foreign hospital may qualify a beneficiary for Part A SNF coverage if the foreign hospital is qualified as an “emergency hospital.”[44] 

The argument for counting observation or outpatient time for purposes of calculating eligibility for the Part A SNF benefit is, of course, far stronger than either of the prior examples since, as CMS acknowledges in the proposed rules, care in the hospital is indistinguishable whether the patient is formally admitted as an inpatient or called an outpatient.

Recently, in describing why a beneficiary continues to be eligible for Part A SNF coverage after the hospital withdraws its Part A claim and submits Part B claims for the patient’s care instead (the hospital rebilling option), CMS wrote, “the 3-day inpatient hospital stay which qualifies a beneficiary for ‘posthospital’ SNF benefits need not actually be Medicare-covered, as long as it is medically necessary.”[45]  CMS confirmed that a hospital’s decision to withdraw its claim for Part A reimbursement and to seek Part B reimbursement instead for a patient’s hospital stay does not negate the fact that the patient received medically necessary inpatient care, for purposes of Part A SNF coverage.  CMS continued:

In addition, the status of the beneficiaries themselves does not change from inpatient to outpatient under the Part B inpatient billing policy.  Therefore, even if the admission itself is determined to be not medically necessary under this policy, the beneficiary would still be considered a hospital inpatient for the duration of the stay – which, if it occurs for the appropriate duration, would comprise a “qualifying” hospital stay for SNF benefit purposes so long as the care provided during the stay meets the broad definition of medical necessity described above.[46]

A patient’s actually receiving “medically necessary” care in the hospital, not the classification of the care as “inpatient,” is the key factor for determining the patient’s eligibility for subsequent Part A SNF coverage.

As the Court in Landers held and CMS itself recognized in 2005, CMS has authority under the Medicare statute to redefine inpatient status to count all time in the hospital.  In Manual provisions, CMS recognizes that care in a hospital that is not covered by Medicare can nevertheless count for purposes of Part A SNF coverage.  In its hospital rebilling option, CMS recognizes that receiving medically necessary care in the hospital is the key factor in determining Part A SNF coverage.  CMS should confirm that time spent in observation or outpatient status qualifies a patient for Medicare Part A SNF coverage so long as the care in the hospital was medically necessary.

Conclusion

Thank you for the opportunity to submit comments on the proposed NOTICE Act and the MOON.

Sincerely,

Toby S. Edelman
Senior Policy Attorney

Judith Stein
Executive Director/Attorney

Center for Medicare Advocacy
1025 Connecticut Avenue, NW, Suite 709
Washington, DC  20036
(202) 293-5760
TEdelman@MedicareAdvocacy.org