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Patient Notification of Observation Status is Now Law

 |  By Alexandra Wilson Pecci  
   August 12, 2015

Under new federal law, Medicare patients who have been in the hospital for more than 24 hours will be required to be notified of their status within 36 hours of when they start receiving medical services as an outpatient.

UPDATE: CMS on Wednesday, August 12, announced that it would extend the enforcement delay of the two-midnight rule through the end of the year. It had been set to expire September 30.

President Obama last week signed the NOTICE Act, which requires hospitals to inform Medicare patients who are in the hospital under outpatient observation status that they haven't actually been "admitted" to the hospital and what that means in terms of cost-sharing requirements and subsequent coverage eligibility.

The new law aims to eliminate the confusion and surprise of out-of-pocket costs for Medicare beneficiaries who might not realize that simply spending the night in the hospital doesn't make one an inpatient—and may leave one vulnerable to unexpected charges.

Medicare patients who have been in the hospital for more than 24 hours are required to be notified of their status within 36 hours of when they start receiving services as an outpatient. Hospitals are required to provide patients with verbal and written notification of their status and will have one year to comply with the law from the date it is enacted.

Under the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act the notification from the hospital must:

  • Explain the individual's status as an outpatient and not as an inpatient and the reasons why;
  • Explain the implications of that status on services furnished (including those furnished as an inpatient), in particular the implications for cost-sharing requirements and subsequent coverage eligibility for services furnished by a skilled nursing facility;
  • Include appropriate additional information;
  • Be written and formatted using plain language and made available in appropriate languages; and
  • Be signed by the individual or a person acting on the individual's behalf (representative) to acknowledge receipt of the notification, or if the individual or representative refuses to sign, the written notification is signed by the hospital staff who presented it.

Although the federal law won't go into effect until next summer, a handful of states have already written laws of their own requiring hospitals to notify patients of their outpatient status. Among those states is Vermont, which is currently developing a standardized form that hospitals will be required to use beginning in December.

Hospitals Take the Lead
Even before that, some hospitals have started to notify patients on their own. The University of Vermont Medical Center is one of the hospitals already notifying patients of their status.

"People say, 'I'm in a bed, doesn't it mean I'm an inpatient?" says Tara Pacy, RN, Director of Clinical Support Services at the University of Vermont Medical Center. It's hard for patients to know their status without having an understanding of the two-midnight rule, and they certainly don't always know that their copays and what services they qualify for after leaving the hospital are different depending on whether they're an inpatient or an outpatient.


Tara Pacy, RN

"We did get some patients concerned saying, 'Hey, I didn't know this, and now I owe this amount of money,'" Pacy says.

The Vermont law says that patients must be notified of their status in writing within 24 hours (the federal law requires 36 hours). According to Pacy, the University of Vermont Medical Center gives patients a hand-delivered notice from a case manager that begins like this:

You are in the hospital under observation. This means your doctor needs to watch you or do more tests to understand your illness. However, you do not meet Medicare's rules for inpatient admission. Even though you are in the hospital and you may stay overnight, Medicare considers you an outpatient. This affects what Medicare will pay for while you are in the hospital and after you leave the hospital. Your share of hospital bills may be larger than if you were an inpatient. If you go to a skilled nursing facility (nursing home) after you leave the hospital, you might have to pay the full cost of your stay.

The notice then goes on to offer explanations of what that means for people's coverage, such as what's covered and not covered under Medicare Part A and Part B, and phone numbers for departments within the hospital, as well as for services and resources outside the hospital, where patients can get more information.

Pacy says the notice letter has been modified over the past few months. For instance, previous versions of the notice tried to list and explain all the different statuses that a patient could be under, but that just complicated matters further.

Now, "we focus just on the observation status, which seems to be the one that confuses the system the most," Pacy says. And although it's rare, she says people have chosen not to go into a bed when they learn that they might be stuck with a hospital bill.

"It is an unintended consequence," she concedes.

Jill Mazza Olson, VP of Policy and Legislative Affairs at the Vermont Association of Hospitals and Health Systems agrees that the rule "has a pretty significant impact on Medicare beneficiaries in terms of their out-of-pocket costs."


Jill Mazza Olson

And although her office is working to develop a statewide, standardized form for all hospitals in Vermont to use, "what we'd really like to see Congress do is change those policies...it's really almost not even a clinical judgement," she says.

Both Pacy and Olson agree that patients need to know about their status. They also say that compliance with the rule isn't particularly difficult. But there are a few things to think about, such as making sure the language is clear and deciding who will provide the notice to the patients. Such specifics will be different within every hospital.

One best practice that Olson recommends is "really thinking through who is going to provide the notice to the patient." For instance, some hospitals have been working with discharge planners, others with case managers. In other hospitals, the ED staff might be the most appropriate people to provide the notice.

In addition, "thinking through all of the players" is seen as important because there has to be coordination with billing, too. Then there are considerations depending on the hospital's location and whether outside services are available. For instance, the Vermont form includes different outside resources to contact not only for Vermont residents, but also for New York, Massachusetts, and New Hampshire residents.

Olson says the state forms are still being adjusted, and time will be spent reviewing and comparing Vermont's law to the federal law and weighing different options, such as eventually amending or repealing the state law. She emphasizes that the policies themselves are a greater problem than the hospitals' notification requirements. "We really wish we could get some headway on the underlying policies," she says. "We don't really think it's great for patients."

Alexandra Wilson Pecci is an editor for HealthLeaders.

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