Hospitals Must Give Patients Notice of Their Observation Status, Beginning March 8, 2017
Effective August 6, 2016, the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act) requires acute care hospitals to provide oral and written notification to patients who are classified as outpatients or observation status patients for more than 24 hours. Notice of non-inpatient status must be provided within 36 hours. On August 22, 2016, the Centers for Medicare & Medicaid Services (CMS) published final rules implementing the NOTICE Act. The final rules, which became effective October 1, 2016, indicate that CMS would require hospitals to use a standardized notice that it drafted, beginning 90 days after approval of the notice by the Office of Management and Budget (OMB).
On December 12, 2016, with OMB’s approval granted, CMS announced that hospitals must give patients the standardized Medicare Outpatient Observation Notice (MOON) beginning March 8, 2017. CMS anticipates that more than one million patients will receive the MOON annually.
The MOON is identical to the draft notice that CMS published on its website on August 1 for the 30-day public comment period that preceded OMB’s review. After the space for the patient’s name and number, the MOON includes a blank space for the hospital to write in the reason the patient is not an inpatient. At the end of the form, on the second side, the hospital, if it chooses, may add more information. CMS’s instructions indicate that Additional Information
may include, but is not limited to, Accountable Care Organization (ACO) information, notation that a beneficiary refused to sign the notice, hospital waivers of the beneficiary’s responsibility for the cost of self-administered drugs, Part A cost sharing responsibilities if the beneficiary is subsequently admitted as an inpatient, physician name, specific information for contacting hospital staff, or additional information that may be required under applicable state law.
The rest of the standardized notice describes hospital charges, coverage and payment for post-hospital care, and medication costs as well as what to do if the patient is a Medicare Advantage plan enrollee or Qualified Medicare Beneficiary through the state Medicaid program.
Medicare Beneficiary Concerns
Concerns with CMS’s implementation of the NOTICE Act, discussed when CMS published the final rules in August 2016, remain.
First, CMS says that patients have no appeal rights and cannot challenge their observation status. 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” are initial determinations that give rise to beneficiary appeal rights. 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’s final rules expressly define the MOON as a notice that is not an initial determination, carving out patient status in the hospital from actions that generate appeal rights. CMS’s explanation for this decision in the proposed rules was not persuasive; CMS simply declared that the NOTICE Act “does not afford appeal rights to beneficiaries regarding the notice provided pursuant to that statutory provision.”
Second, not all outpatients will receive notice of their non-inpatient status. CMS specifies that only inpatients who are classified as receiving “observation services” will receive the MOON. As discussed in the Center’s August 4 Alert, this interpretation of the NOTICE Act by CMS conflicts with the legislative history of the law, which requires notice for all patients not admitted as inpatients.
In 2013, the HHS Inspector General reported that half the non-inpatients did not have an observation status classification and were only called outpatients. The Inspector General reported, specifically, that, in 2012, 1.5 million patients were observation status patients and an additional 1.4 million patients were coded as outpatients. CMS’s interpretation of the NOTICE Act means that at least an additional million outpatients will not receive notice of their non-inpatient status.
What can patients expect until March 8, 2017?
Although patients cannot expect to receive the MOON for several months, they should ask about their status in the hospital now. CMS anticipates that the requirement for oral notification will occur at the same time that the hospital gives the patient the written MOON. However, since the NOTICE Act’s requirements for oral and written notice are separate statutory requirements and both are in effect now, patients may be entitled to oral information about their status until use of the MOON is also required.
Several alternative approaches could resolve the problems that observation status creates for patients, which are chiefly nonpayment by Medicare Part A of post-hospital care in a skilled nursing facility (SNF) because the patient did not have a qualifying three-day inpatient hospital stay, high drug bills during hospitalization, and, for patients without Part B, full charges for hospital care.
- CMS could define inpatient care to mean an overnight stay. At CMS’s request, the Center for Medicare Advocacy prepared a legal memorandum setting out the agency’s authority to promulgate regulations defining inpatient care.
- Congress could enact the Improving Access to Medicare Coverage Act of 2015 (H.R. 1571/S. 843), which counts all time in the hospital for purposes of meeting of the three-day inpatient qualifying stay requirement for SNF coverage.
- Congress could repeal the three-day inpatient requirement. CMS is currently testing waivers of the three-day requirement in a variety of demonstrations;  managed care organizations are permitted to waive the three-day inpatient hospital requirement and most do. The vast majority of Medicare beneficiaries, who are in traditional Medicare, should also have this right.
 Pub. L. 114-42, 42 U.S.C. §1395cc(a)(1)(Y).
 81 Fed. Reg. 56761, 57037-57053 (Aug. 22, 2016), https://www.gpo.gov/fdsys/pkg/FR-2016-08-22/pdf/2016-18476.pdf. See Center for Medicare Advocacy, “CMS Delays Implementation of NOTICE Act Until Fall 2016,” (CMA Alert, Aug. 4, 2016), http://www.medicareadvocacy.org/cms-delays-implementation-of-notice-act-until-fall-2016/.
 The MOON and instructions for its use are at https://www.cms.gov/Medicare/Medicare-General-Information/BNI/index.html?redirect=/bni.
 See Center for Medicare Advocacy, “CMS Delays Implementation of NOTICE Act Until Fall 2016,” (CMA Alert, Aug. 4, 2016), http://www.medicareadvocacy.org/cms-delays-implementation-of-notice-act-until-fall-2016/.
 42 C.F.R. §405.926(u), 81 Fed. Reg., 57267.
 42 C.F.R. §405.924(b)(11).
 See, for example, Form CMS-R-131, https://www.cms.gov/Medicare/Medicare-General-Information/BNI/ABN.html (independent laboratories, home health agencies, hospices, physicians, practitioners, and suppliers in traditional Medicare); Form CMS-10055, https://www.cms.gov/Medicare/Medicare-General-Information/BNI/FFSSNFABNandSNFDenialLetters.html (skilled nursing facilities); CMS-HINN, https://www.cms.gov/Medicare/Medicare-General-Information/BNI/HINNs.html (hospitals); CMS-10003-NDMCP, https://www.cms.gov/Medicare/Medicare-General-Information/BNI/MADenialNotices.html (Medicare Advantage plans).
 42 C.F.R. §405.926(u).
 81 Fed. Reg. 24945, 25134 (Apr. 27, 2016), https://www.gpo.gov/fdsys/pkg/FR-2016-04-27/pdf/2016-09120.pdf.
 81 Fed. Reg., 57038-57040.
 Office of Inspector General, “Memorandum Report: Hospitals’ Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries,” OEI-02-12-00040 (Jul. 29, 2013), https://oig.hhs.gov/oei/reports/oei-02-12-00040.pdf.
 The Center recently received a call from a woman who was in the hospital for 21 hours. She does not have Part B and was billed more than $21,000 by the hospital.
 July 16, 2014, at http://www.medicareadvocacy.org/cms-has-authority-under-existing-law-to-define-inpatient-care/.
 See Center for Medicare Advocacy, “A Model to Waive the Three-Day Inpatient Hospital Stay Requirement for Care in a Skilled Nursing Facility,” (CMA Alert, July 19, 2016), http://www.medicareadvocacy.org/a-model-to-waive-the-three-day-inpatient-hospital-stay-requirement-for-care-in-a-skilled-nursing-facility/.