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California Hospitals Must Follow Two Laws for Observation Status

News  |  By Doug Desjardins  
   March 27, 2017

A new federal law requires hospitals to explain observation status to patients and how it could impact their out-of-pocket costs. A similar state observation notice law took effect in January.

This story originally appeared in California Healthfax.

Hospitals in California must now comply with two laws requiring them to notify patients if they are under observation status and explain the potential out-of-pocket cost implications that observation status may carry.

A new federal law that went into effect March 8 requires hospitals to provide a form to Medicare patients being held in observation that explains observation status and how it could impact their out-of-pocket costs.

The new version of the Medicare Outpatient Observation Notice (MOON) is designed to reduce the risk of Medicare beneficiaries receiving surprise bills for outpatient care.

MOON Advisory: Medicare Updates Observation Status Rules

A similar state observation notice law took effect in January.

Although it has the same goals as the federal regulation, the state law includes different notification timelines and covers all patients, not just Medicare beneficiaries.

'It's Complicated'
"It's complicated and hospitals have to understand both requirements and how they work," said Debby Rogers, vice president of clinical performance and transformation for the California Hospital Association (CHA).

Senate Bill 1076, authored by Sen. Ed Hernandez (D-West Covina), was approved by state lawmakers in 2016.

It requires hospitals to notify patients immediately when they are in observation status, and to provide those patients with care that's equivalent to the care provided to inpatients.

CA Governor Signs Flurry Of Health Laws

The federal law requires hospitals to notify patients within 36 hours of being placed in observation care, but a hospital can provide the forms to patients sooner if the hospital is in a state—such as California—that has its own laws regarding observation status.

CMS also allows hospitals to provide non-Medicare patients with MOON forms explaining the ramifications of observation care.

"So there are complexities involved with both policies and they require a higher level of planning for hospitals to make sure they cover all the bases," said Rogers.

CMS has been struggling for years to work out a solution to address patient complaints about observation status.

In 2013, the agency issued the two-midnight rule that required doctors to admit patients to the hospital if they expected patients to remain in the hospital for more than two days (two midnights).

But a study of the program released in December 2016 by the U.S. Health & Human Services Department Office of Inspector General determined that the policy did not reduce the incidence of observation visits.

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