Bill requiring Medicare patient notification of observation status heads to President Obama

Obama is expected to sign the measure

The Senate on Monday unanimously approved legislation that would require hospitals to notify Medicare beneficiaries when they have been put under observation status, rather than being admitted to the hospital.

The bill now heads to President Obama, who is expected to sign the measure.

Background on observation status

Beneficiaries who are under observation—which is considered outpatient care—can often face higher out-of-pocket costs, including higher copayments and charges for drugs that are not covered for outpatient stays.

The amount of time spent under outpatient observation can also affect whether a patient is eligible to receive Medicare coverage for post-acute care. To be eligible for Medicare's nursing home coverage, beneficiaries must spend three consecutive midnights admitted in a hospital, not counting observation days.

Several states already require observation care notices, including:

  • Connecticut;
  • Maryland;
  • New York;
  • Pennsylvania; and
  • Virginia.

CMS in a final rule for the fiscal year 2014 Inpatient Prospective Payment System instituted the "two-midnight" rule in an attempt to clarify when Medicare will reimburse at inpatient rates. Congress has repeatedly delayed full enforcement of the rule.

HOPPS proposal: What's next for the two-midnight rule?

Bill details

Under the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, hospitals would be required to provide written notification to Medicare beneficiaries within 24 hours after receiving observation care. The notification would explain:

  • Denial of admission;
  • Potential financial implications; and
  • Reasons for denial of admission (Mongan, McKnight's, 7/28; Jaffe, Kaiser Health News, 7/29).

Related webconference: Medicare hospital outpatient payment update

June 4

Join us on August 11 from 3-4:30 p.m. ET to get a complete breakdown of the Hospital Outpatient Prospective Payment System Proposed Rule for CY 2016.

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The CFO's guide to the two-midnight rule

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