Good news for Medicare beneficiaries! On August 6, 2015, the President signed into law the NOTICE Act. This new law requires hospitals to provide written notice to Medicare beneficiaries who have been admitted under "observation status." The written notice must explain that any hospital services they receive while on observation status will not be covered by Medicare Part A.
Patients who are admitted to a hospital under "observation status" are classified as outpatients, not hospital inpatients. Medicare Part A benefits, however, are not available to outpatients. In order for a hospital stay to be covered by Medicare Part A, the patient must be classified as a hospital inpatient. As long as a hospital patient is on observation status, the only Medicare coverage available is Medicare Part B. Unfortunately, Medicare Part B does not cover most of the care provided in a hospital setting – that's what Medicare Part A is for.
As the use of observation status by hospitals has become more widespread, an increasing number of Medicare beneficiaries have been notified that they owe thousands of dollars for a hospital stay they had assumed was covered by Medicare. Until now, hospitals were not required to notify patients of their observation status, so many Medicare beneficiaries did not find out until weeks or months after their hospitalization, when they began to receive bills for their hospital care.
Being put on observation status can also affect Medicare coverage for a post-hospital nursing home stay. Although Medicare does not cover much nursing home care, Medicare Part A will pay for up to 100 days of skilled nursing home care if a beneficiary meets certain eligibility requirements and the nursing home admission follows a qualified hospital stay of at least 3 days. Because observation status days don't count toward the 3-day hospitalization requirement, and because hospitals have not been notifying patients of their observation status, many patients and nursing homes have found out after admission that a patient doesn't qualify for Medicare nursing home coverage because the patient did not have 3 non-observation status days in the hospital before being discharged to the nursing home. Sadly, this is often not discovered until after the Medicare beneficiary has incurred thousands of dollars of nursing home bills that he or she assumed would be covered by Medicare.
What the NOTICE Act Does
The Notice of Observation Treatment and Implication for Care Eligibility Act (the "NOTICE Act") requires hospitals to provide patients with written notice of their observation status no later than 36 hours after the hospital first designates them as being on observation status. The notice must explain observation status and describe how observation status will affect the beneficiary's Medicare coverage, both in the hospital and after discharge. Timely notice should make it easier for beneficiaries to challenge an observation status designation while they're still in the hospital and can enlist the support of their physician(s).
What the NOTICE Act Doesn't Do
1. It doesn't take effect immediately. Hospitals have 12 months before they must begin notifying Medicare patients of their observation status.
2. The NOTICE Act doesn't prevent hospitals from putting patients on observation status.
The use of observation status has come under increased scrutiny as it has become more common. The Medicare Payment Advisory Commission, the independent government entity that advises Congress on Medicare policy, recently submitted recommendations to Congress to address some of the issues caused by observation status. In addition, legislation has been introduced in Congress to fix this problem. If you would like to follow this issue, the Center for Medicare Advocacy, Inc. continually posts observation status updates on their website.