Take notice of the NOTICE act

Medicare beneficiaries who receive observation services as an outpatient for more than 24 hours are now required to be given formal notice of observation requirements and attendant financial obligations.


Observation services have always posed many challenges for hospitalists. When is observation care indicated versus inpatient admission? How long can or should a patient be managed in observation? What constitutes inpatient medical necessity? Whose criteria are to be used? What are the exceptions? How do you get the correct order by the correct person at the correct time? Where in the hospital does the patient belong? Who's going to be responsible for him? What's the role of case management? When and how can an order be changed? What's the cost to the patient? Does the patient understand what's going on?

The last 2 questions can be especially problematic. Patients are often unaware of the inpatient/observation distinction or of their admission status when provided observation care at the hospital, thinking they have been “admitted” as an inpatient. Observation services are classified as outpatient care, subject to a 20% copayment, in contrast to inpatient care, for which there is no copayment. Days of observation care also do not count toward the 3-day admission requirement for skilled nursing care benefits. Medicare has always informed its beneficiaries that the choice rests solely with their physicians while holding the clinicians liable for making a wrong decision—a proverbial gun to the head.

Photo by Thinkstock
Photo by Thinkstock

Although giving patients formal notice of their observation requirements and attendant financial obligation has long been recommended as a best practice, hospitals have typically not done so, and until now Medicare has not made it a requirement. Patients are frequently shocked and angered, blaming their doctors, when the unexpected bill arrives for 20% of the Medicare-approved payment.

Congress decided to remedy the situation with the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, intending to create greater transparency and help ensure that Medicare beneficiaries fully understand their status and their financial liability for observation care. Five states had already enacted a similar requirement for such disclosure: New York, Pennsylvania, Maryland, Virginia, and Connecticut.

Effective August 2016, the NOTICE Act requires that Medicare beneficiaries who receive “observation services as an outpatient... for more than 24 hours” be given “oral explanation of the written notification” of their inpatient or observation status within 36 hours of initiation of observation services or upon release if earlier than 36 hours.

The written notice must include:

  • explanation of the status of the patient as an outpatient receiving observation services and not as an inpatient,
  • the reasons for such observation status, and
  • explanation of the implications of observation status on services furnished, such as the cost-sharing (copayment) requirements and subsequent eligibility for coverage of skilled nursing facility care.

CMS is requiring hospitals to furnish its new, standardized notice, the Medicare Outpatient Observation Notice (MOON), to Medicare beneficiaries for the purpose of complying with the NOTICE Act. A signature by the patient or a qualified representative must be obtained. If the patient or his or her representative refuses, the hospital staff member giving notice may sign.

In summary, the provisions of the NOTICE Act take effect in August 2016. Hospitals must give notice and explanation of observation status to Medicare patients receiving observation care services for more than 24 hours within 36 hours of initiation of those services using the standardized CMS MOON form. Although the Act does not require this, hospitals might consider giving immediate notice when the observation services are initiated to avoid inadvertently missing the 36-hour deadline.