• Observation Status: Notice Act

Observation Status in Hospital Change: Understanding your risk

Carol F. Barton

The Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act [2] was recently signed into law; it will not become effective until the summer of 2016. The Act requires hospitals to inform Medicare patients who have been placed on “observation” status that they are not actually admitted as inpatients and what that means to them in terms of cost-sharing requirements and subsequent coverage eligibility. Previously, hospitals were not required to inform patients of their status.

“Observation” is synonymous with outpatient; consequently reimbursement for medical services is different than it is for inpatient services under Medicare – even though patients receive medical and nursing care, diagnostic tests, medications and food.

The objective of this new law is to eliminate two areas of the confusion, which have been occurring over and over again. First, persons who thought they were treated as an inpatient received unexpected, and sometimes significant, charges from the hospital because their hospitalization was categorized as “under observation.”  Second, individuals who were transferred to nursing or rehabilitation facilities discovered that Medicare would not pay because they did not satisfy the three-day inpatient hospital rule for Medicare coverage.

Under the NOTICE Act, a hospital must:

  • Within 24 hours of admission, explain that you are considered an outpatient  and not inpatient and how they arrived at that status
  • Explain to you the implications for out-of-pocket costs and subsequent eligibility for services if you are admitted to a skilled nursing facility
  • Notification must also be written in plain and understandable language
  • The written document must be signed by you or your representative  and by the hospital staff member who presented you with the information

What This Means for You

  • The new law does not cure some of the past problems with Medicare requirements but, at the very least, this law will provide a warning  and ensure that you understand your status and the reasons why
  • Importantly, since this law does not go into effect until the summer of 2016, in the meantime you or a family member need to ask whether you are considered to be a hospital inpatient or outpatient  – and you need to inquire every day during your stay  since your status could be changed
  • Some patients may even decide to receive different medical services in order to avoid  high out-of-pocket costs – provided that is feasible
  • Mistakes have been made in categorizing patients; it is wise to appeal the observation status before signing any documents since your costs could be significant more than expected

Should you have questions regarding a patient’s hospital status and how to handle an appeal, or need clarification about the law, contact an elder law attorney.

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