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NOTICE Act Requires Notification of Observation Status by Law

August 26, 2015

Informing Medicare patients on treatment status has always been important; not only to patient satisfaction, but also to a hospital's cash flow. It is often easier to collect copays and out-of-pocket expenses from patients who understand what they owe and why. Knowing this, many hospitals have already been notifying Medicare patients of their status to avoid confusion on inpatient deductible versus outpatient coinsurance. With the signing of the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act last week, it's now required by law.

In order to limit confusion on out-of-pocket costs, the NOTICE Act requires that hospitals give Medicare patients notification of status within 36 hours of when they start receiving medical services as an outpatient. This applies to patients who receive observation services as an outpatient for more than 24 hours. The law requires the patient be provided with both verbal and written status.

According to the NOTICE Act, the notification from the hospital:

  • explains the individual's status as an outpatient and not as an inpatient and the reasons why;
  • explains 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;
  • includes appropriate additional information;
  • is written and formatted using plain language and made available in appropriate languages; and
  • is 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.

Beneficiaries are often not aware that being in a hospital bed does not always equate an inpatient stay. Without understanding of the two-midnight-rule, a patient's status may not be clear. They may not know what is covered under Medicare Part A and Part B, or what they owe.

The new law aims to clarify the status and therefore the beneficiary's financial obligations. HealthLeaders Media recently shared an example of how the University of Vermont Medical Center uses clear language and a hand-delivered note from a case manager to inform patients on status:

"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."

Determining the language used along with assigning who will deliver the message are the first steps in complying with the new law. Hospitals are expected to comply within a year.

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