Hospitals now have additional time before they must meet federal requirements to provide written notice to Medicare patients who are receiving observation services. Congress passed the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act) in 2015, in response to patient confusion and complaints related to hospital observation stays. The rules were expected to be effective in August 2016. The Centers for Medicare and Medicaid Services (CMS) announced on August 2, 2016, that hospitals will have to begin delivering notices effective October 1, 2016. The actual enforcement date may be later in the year or even early next year, depending on the length of the process for final approval of the form.  In response to comments from hospitals and advocacy organizations, CMS made several changes to the notice form. The result is a form written in plain language that Medicare beneficiaries and their families will understand.

Under the NOTICE Act, hospitals must provide specific written notice—using the CMS Form—to beneficiaries who are in observation status. The rules are intended to prevent the sticker-shock of unintended cost-sharing obligations of observation stays. The notice explains the reason observation services are being provided, the coverage differences between ‘Observation’ status and ‘Inpatient’ status, and the financial implications to the beneficiary. Hospitals must also orally explain the form and have it signed by the beneficiary or an individual acting on the beneficiary’s behalf.

Placing a beneficiary in observation status, rather than admission as a hospital inpatient, triggers different financial and coverage implications for both the beneficiary and the hospital. For the beneficiary, for example, Medicare does not cover skilled nursing facility costs unless a beneficiary spends three consecutive nights as a hospital inpatient (and outpatient or observation days do not count). For the hospital, medications received during hospital inpatient stays are covered by Medicare Part A, but those same drugs administered to beneficiaries in observation status are covered under Medicare Part B, with beneficiary copay obligations.

In a Fact Sheet dated August 2, 2016, CMS highlighted key portions of the Final Rule relating to the NOTICE Act:

  • Hospitals are required to furnish the standardized CMS notice to a Medicare beneficiary who has been receiving observation services as an outpatient for more than 24 hours.
  • Hospitals may deliver the notice to individuals receiving observation services as an outpatient before such individuals have received more than 24 hours of observation services, but the notice must be provided no later than 36 hours after observation services are initiated or, if sooner, upon the beneficiary’s release.
  • An oral explanation of the notification must also be provided to the beneficiary, ideally at the same time the written notice is presented. In cases where a beneficiary refuses to sign the form, the Hospital staff member providing the notice must sign to certify that the notification was presented.

If they have not done so already, hospitals should begin preparations to implement these notice obligations, including development of new procedures, allocation of resources and staff training, and coordination with relevant state law notice requirements.