Knowledge Base Article

A standard circus act throughout time has been jumping through hoops – little dogs with bows and skirts jump through hoops; growling lions and tigers jump through hoops; even people jump through flaming hoops. There is a new “act” in town and it too requires jumping through hoops.

The NOTICE Act

On August 6, 2015, President Obama signed into law the NOTICE Act (Notice of Observation Treatment and Implication for Care Eligibility Act). The NOTICE Act requires hospitals to:

• Provide written and oral notification to patients when they have received observation services for more than 24 hours.
• Notification must be done within 36 hours from the beginning of observation services or at the time of discharge, whichever is first.
• The notice must explain the patient’s status (outpatient with observation services) and the reasons for the outpatient with obs status as opposed to being admitted as an inpatient.
• The notice must also explain the implications of that status for cost-sharing requirements and for subsequent eligibility for coverage of services furnished by a skilled nursing facility.
• The notice must be “written and formatted using plain language and made available in appropriate languages.”
• The patient or their representative must acknowledge receipt of the notice with their signature, or the annotation and signature of the presenter if the patient refuses to sign.
• Hospitals have one year – until August 2016 – to implement this requirement.

CMS may provide additional guidance on the format and requirements for the notice prior to the implementation date. For example, what constitutes “appropriate languages?”

What This Means for Hospitals and Patients

If hospitals are applying the two-midnight inpatient admission rule correctly, the volume of patients receiving observation services for more than 24 hours without subsequently being converted to inpatient status should be low. Remember if a patient requires medically necessary services beyond a second midnight, Medicare regulations state that the patient should be admitted as an inpatient. Patients who no longer require medically necessary services but remain in the hospital for convenience reasons do not meet the criteria for observation services, so observation hours should no longer be charged. Here is one shortcoming of the new law – it does not address patients in an extended outpatient “without observation” status. An Advance Beneficiary Notice (ABN) can be given to these patients who no longer require medically necessary treatment in the hospital setting but remain in an extended outpatient status if the hospital continues to charge for hourly services.

Several states including Connecticut, Maryland, New York, Pennsylvania and Virginia, already require hospitals to give patients notices about observation care and some hospitals in other states are voluntarily providing notices to patients concerning their status. Hospitals have a whole year to develop a process for implementing this requirement – whether it is to modify their current notification process or come up with a new process.

One purpose of the notice is to explain “cost-sharing” – that is the patient’s financial responsibility of outpatient status with observation versus inpatient status. It would be rare that the patient’s deductible and co-pay for observation care would exceed the inpatient deductible of $1,260. The outpatient deductible is only $147 per year for all Part B services and hospital outpatient co-pay is around 20% of the observation payment (proposed to be " $2,100 for 2016) and other separately payable services. If the 2016 OPPS proposal for a comprehensive observation payment goes forward, all adjunctive services provided during the outpatient with observation stay are bundled into the observation payment. Patients in an outpatient hospital stay are also responsible for self-administered drugs but again it is unlikely that the combined outpatient cost-sharing will exceed the inpatient deductible amount. The one exception is for patients who do not have Part B coverage – these patients would be responsible for the cost for the total outpatient care. As opposed to the Important Message from Medicare for inpatient admissions, under this Observation Notice patients do not have any appeal rights – their only options if they are concerned about their costs are to try to sway their physician to admit them or leave the hospital.

It is also unlikely that a patient receiving only outpatient with observation services for greater than 24 hours would be a candidate for a skilled nursing facility (SNF) admission – another notification requirement of the act. Medicare beneficiaries must have a qualifying three-day inpatient stay to qualify for Medicare benefits for a SNF admission. In the days prior to the two-midnight rule, it was not unusual to have patients with extended observation stays of 3 days or longer that were not eligible for Medicare coverage of a SNF admission. The more likely scenario now, post-two-midnight rule, is that patients receiving observation services will be converted to an inpatient status for hospital care prior to being transferred to a SNF. The problem here, not addressed by the new law, is whether the post-observation care inpatient admission lasts for three days, enough to qualify for the SNF admission.

So hospitals are left with another hoop to jump through that, although well-intentioned, may fall short on protecting the patient.