Observation Status: The NOTICE Act Will Soon Be Law

An increasing number of patients in hospitals are not formally admitted as inpatients, but as “outpatients” on “observation status.”  Although they receive whatever medical and nursing care, diagnostic tests, medications, and food they need, their status as “outpatients” means that they do not satisfy the three-day inpatient hospital prerequisite for Medicare coverage of post-acute care in a skilled nursing facility.  The Center has written about this issue extensively.[1]  To date, Medicare has not required hospitals to notify patients of their outpatient status unless a hospital changes a patient’s status from inpatient to outpatient.  That practice is about to change.

Effective Twelve months after the recently passed Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act[2] is signed by President Barack Obama, hospitals will be required to inform patients who are hospitalized for more than 24 hours that they are in observation status.  No later than 36 hours after a patient begins to receive observation services, the patient must be informed, both orally and in writing, of his or her observation status.  The written notice must explain that the patient is not an inpatient, “the reasons for such status,” and the implications of such status both for cost-sharing in the hospital and for “subsequent eligibility for coverage” in a skilled nursing facility.  The patient or person acting on the patient’s behalf, or, if they refuse, a staff member of the hospital, must sign the written notice.  The Secretary of the Department of Health and Human Services may require that hospitals provide beneficiaries with additional information.

House Report 114-39 explains that the legislation provides beneficiaries with “accurate, real-time information with respect to their classification, the services and benefits available to them, and the respective cost-sharing requirements they are subject to.”[3]  The Senate Report 114-107 describes the increasing use of observation over the last several years and some beneficiaries’ surprise to learn that they are outpatients, “although having received treatment overnight in a hospital bed.”[4]

The NOTICE Act adds a new subsection (Y) to 42 U.S.C. §1395cc(a)(1)(Y), a provision addressing the Secretary’s agreements (contracts) with Medicare health care providers.

The NOTICE Act was sent to the White House on July 29, 2015 and is expected to be signed by the President soon.

August, 2015 – T. Edelman