Observation Status is a designation used by hospitals to bill Medicare. Unfortunately, it can hurt hospital patients who rely on Medicare for their health care coverage.  People who receive care in hospitals, even overnight and for several days, may learn they have not actually been admitted as inpatients. Instead, the hospital has classified them as Observation Status, which is an “outpatient” category. This designation can happen even for people who are extremely sick and spend many days in the hospital.

The “outpatient” classification is often a surprise to patients.  Many do not realize their status until the patient is getting ready to leave the hospital. Most of the time hospital patients are not told or given a written notice when they are designated as outpatients on Observation Status.

If a patient is designated as under “observation”, the patient upon discharge does not have Medicare skilled nursing coverage for rehabilitation care in a skilled nursing home or at home.  Therefore, care would need to be paid privately instead of having Medicare  coverage up to a maximum of 100 days.

To address this issue, beginning no later than March 8, 2017, and as required by the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act), hospitals and critical access hospitals are required to give patients both oral and written notice when they are outpatients and not admitted as inpatients. Hospitals must use the written notice developed by the Centers for Medicare & Medicaid Services (CMS), which is called the Medicare Outpatient Observation Notice (MOON).

Although the NOTICE Act requires hospitals to give oral and written notice to the outpatient, the MOON requires the signature of the patient or the patient’s representative.  Further elaborating on who can be given oral and written notice of a patient’s observation status, CMS’s instructions define three categories of representatives:

Appointed representatives, who “are designated by beneficiaries to act on their behalf;”

  • Authorized representatives, who, “under State or other applicable law, may make health care decisions on a beneficiary’s behalf (e.g., the beneficiary’s legal guardian, or someone appointed in accordance with a properly executed durable medical power of attorney); and
  • A person (typically, a family member or close friend) whom the hospital or CAH has determined could reasonably represent the beneficiary, but who has not been named in any legally binding document, [who] may be a representative for the purposes of receiving the MOON.”  The hospital staff person who initiates contact with the family member or close friend must annotate the MOON and record the date, time, and method of contact (in person or by telephone).

In an exception to the requirement that the MOON be given in person to the patient, CMS’s instructions allow a hospital to make “an off-site delivery to the representative.”  The hospital must communicate orally all of the information contained on the MOON to the representative and then must send “a copy of the annotated MOON” to the representative “by certified mail, return receipt requested, or any other delivery method that can provide signed verification of delivery (e.g., FedEx, UPS).”  The MOON must be mailed on the same day as the telephone call.

Alternatively, if agreed to by the hospital and the representative, the hospital “may send the notice by fax or e-mail.”

Also, CMS’s instructions require hospitals to use “their usual procedures to ensure notice comprehension.  These procedures may include “translators, interpreters, and assistive technologies” as well as language assistance services to individuals with limited English proficiency (LEP) consistent with section 1557 of the Affordable Care Act (ACA) and Title VI of the Civil Rights Act of 1964.”   In addition, as required by the ACA and §504 of the Rehabilitation Act of 1973, hospitals must provide auxiliary aids and services free of charge to patients with disabilities.  The MOON is currently available in English and Spanish.  You can find the MOON notice at the link below.

CMS Observation Status Notice

About Jerry

Jerold E. Rothkoff, a practicing New Jersey and Pennsylvania attorney, is the Principal of the Rothkoff Law Group, an elder care law firm. Jerry dedicates his practice to serving clients in the areas of life care planning, long-term care planning, Medicaid & VA benefits, and advocacy for the elderly and disabled. He is past President of the NJ Chapter of the National Academy of Elder Law Attorneys, former chair of the elder law section of the NJ State Bar Association, and past President of the Life Care Planning Law Firm Association. Jerry continues to be an outspoken advocate for the rights of the elderly and disabled. He writes for and gives presentations regularly to attorneys and other professionals about legal issues related to seniors and those with disabilities. Jerry’s community activities include the Twilight Wish Foundation, the Delaware Valley Stroke Council, the Alzheimer’s Association, as well as numerous other advocacy groups. When not in the office, Jerry spends time with his wife, Erica, and their five children, eighteen-year old identical twin girls, Liza and Julia, fifteen-year old fraternal twin boys, Evan and Gregory, and six-year old Aitan.

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