NOTICE ACT Goes into Effect Regarding Medicare “Observation Status”


A new federal law HR 876 called the NOTICE Act went into effect on Saturday, August 6th, requiring all hospitals to give patients a notice within twenty four hours whether they have been admitted to the hospital or are in “observation status.”  This has been a years-long controversy as the number of observation status cases has skyrocketed because of financial penalties for unnecessary re-admissions as well as auditing fears that Medicare would retroactively deny payment for initial admissions.

A patient who has not been admitted for three nights in the hospital would have to pay out of pocket for any rehab in a skilled nursing facility for example.  If the patient is given notice, he or she can seek a change to admission status if they will be in the hospital for at least three nights.   If a patient is not admitted to a hospital, then Medicare Part B outpatient coverage is provided for insurance.  Part A of Medicare covers inpatient services.  A similar law has already been in effect in New York State.

Here are seven things to know about the NOTICE Act.

1. The legislation calls for hospitals to provide written notice to patients who are in the hospital under observation status for more than 24 hours. Hospitals would need to provide notification no later than 36 hours after the time observation status begins.

2. The written notice must include why the patient was not admitted to the hospital and the financial implications of observation status, including subsequent eligibility for coverage for a skilled nursing facility.

3. Medicare does not cover skilled nursing facility stays unless the patient was admitted as an inpatient for a minimum of three nights. In some cases, physicians reclassify people as inpatients when more than observation is needed. Medicare patients who are not reclassified have to either forgo SNF care or pay for it themselves, regardless of the length of their hospitalization.

4. Medicare Part A pays for inpatient stays. If you are hospitalized on observation status, payment by Medicare is under Part B, which covers physician and outpatient services. Patients without Part B coverage are often left with the bill for observation status, even though there was not a perceptible difference in the type or level of care they received in the hospital.

5. A number of states, including Connecticut, Maryland, New York, Pennsylvania and Virginia, already require hospitals to give patients notice about observation care.

6. There were an estimated 1.5 million observation stays among Medicare beneficiaries in 2012. The number of observation stays increased 100 percent from 2001 to 2009, likely because of financial pressure on hospitals to reduce potentially preventable readmissions of inpatients within 30 days.

7. Under the NOTICE Act, hospitals would be required to notify patients about observation status, but patients can only change that status by swaying a physician or the hospital to do so. Yale-New Haven (Conn.) Hospital CEO Marna Borgstrom noticed that after learning they were under observation care, many patients left the hospital against medical advice


A group of 40 consumer advocates held a press event outside the State Capitol last week urging Governor Cuomo to sign a bill that would create an appeals process for doctors who  believe that “step therapy” hurts their patient’s treatment.    Step therapy refers to the practice of health insurers who require patients to “fail first” on cheaper medications  or medications preferred by insurance plans before being able to use a drug that has been effective for them.   Governor Cuomo has not indicated a position on this bill though his Division of the Budget has supported these types of cost restraints.

The bill passed is S.3419C/A.2834D and was sponsored by Senator Catherine Young and Assemblyman Matthew Titone.  The bill has not been delivered to the Governor yet for his action so the ten day period for him to make a decision has not begun.

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I have been a senior advocate for most of my career. I was Executive Director of the New York StateWide Senior Action Council and the New York State Alliance for Retired Americans. In 2007-2010 I was the Director of the New York State Office for the Aging

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