What the NOTICE Act means for healthcare organizations

The whole concept of an "observation admission" is somewhat confusing. In the minds of most patients — and providers, too — a trip to the emergency department should result in one of two outcomes: 1) the patient is sent home or 2) the patient is "admitted."

In practice, however, there is frequently a third option: the patient is admitted for observation.

Observation status is a classification used by Medicare when someone is not well enough to be released from the hospital, but not sick enough to be admitted as an inpatient. Although patients still receive medical care, diagnostic tests and medications while in a hospital bed, they are technically considered "outpatients" whose services are paid under Medicare Part B.

That means observation status has significant financial implications. Medicare Part B is optional coverage, and the beneficiary is generally responsible for copayments and other costs in addition to a deductible. Furthermore, a hospital observation stay does not count toward the three-day hospital stay required for Medicare coverage of subsequent treatment at a skilled nursing facility.

Currently, Medicare only requires notification of observation status if the hospital changes a patient's status from inpatient to outpatient/observation. As a result, many Medicare recipients have stayed in the hospital overnight believing they were inpatients covered under Part A, when in fact they were not — and they were not fully aware of the financial implications until they received their bills.

For these reasons, President Barack Obama signed the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act) in August. This legislation is designed to help ensure Medicare patients fully understand their status and their financial liability when they are admitted for observation.

Prepare for the change

Starting August 2016, the NOTICE Act will require hospitals nationwide to inform patients of their inpatient or observation status. (Five states — New York, Connecticut, Maryland, Pennsylvania and Virginia — already require similar disclosures.)

Medicare beneficiaries in the hospital for more than 24 hours must be informed in writing of their status within 36 hours of when they begin receiving medical services as an outpatient. The written notice must clearly explain:

  • that the individual is not an inpatient;
  • the reasons for the person's observation status; and
  • the implications in terms of increased financial responsibility and lack of eligibility for coverage in a SNF after discharge.

The patient or their representative must sign the notice to acknowledge their understanding.

Best practices

A study by Brown University researchers published in Health Affairs documents the increased use of observation status for Medicare beneficiaries, and notes that, "Although observation services are often appropriate, the extended use of such services could have unintended consequences for some Medicare beneficiaries by limiting access to skilled nursing care and subjecting them to higher out-of-pocket spending."

Although improved patient awareness and education is the goal of the NOTICE Act, it may also have some unintended consequences on patient behavior. Patients concerned about the potential costs associated with observation status, for example, may insist on returning home and leave the hospital against medical advice (AMA).

Embedding case managers in the ED is one step hospitals can take to help comply with the NOTICE Act, educate patients appropriately and improve patient care. At Edward-Elmhurst (Ill.) Healthcare, for instance, ED case managers already understand the rules. They work closely with ED physicians and guide them regarding the right initial status.

If a person's health status — or their insistence on leaving the hospital AMA — creates any cause for concern, Edward-Elmhurst case managers reach out to family members, home health and other community-based resources to provide post-discharge care, monitoring and other forms of assistance. In addition, an electronic survey tool enables them to follow up with patients at home to ask if their conditions have deteriorated, improved or stayed the same.

For example, when a patient taps the "I'm feeling worse" button in response to the survey, the reply is routed to the case manager, who alerts the care team that immediate clinical intervention is required. Case managers can also identify gaps in understanding regarding discharge instructions, medications or follow-ups. In essence, the technology helps extend the continuum of care 24 to 48 hours outside the hospital episode of care.

Enhance compliance and patient care

Hospitals and health systems will be better prepared to comply with the NOTICE Act if they start now to:

  • analyze and update observation programs as appropriate;
  • provide additional patient education about observation status;
  • expand the role of case managers; and
  • deploy follow-up tools as a "safety net" for those patients who are not admitted.

The NOTICE Act is intended to give patients more transparency and a greater insight into the financial implications of care decisions. By empowering patients with the right education, staff and tools, hospitals can comply with both the letter and the spirit of the law.

Tom Scaletta, MD, is board certified in both emergency medicine and clinical informatics. He is the medical director of patient experience and the emergency department chair at Edward-Elmhurst Healthcare, past president of the American Academy of Emergency Medicine and a national speaker on emergency department operations and patient satisfaction. Tom designed a computerized patient communication system praised by the Robert Wood Johnson Foundation and Urgent Matters (George Washington University).

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