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A renewed call to overhaul hospital observation care


FEATURED POST: “A Renewed Call to Overhaul Hospital Observation Care”

In response to concerns about Medicare beneficiary out-of-pocket financial risk, Congress unanimously passed the NOTICE Act, which President Obama signed into law August 5, 2015. This law states that all Medicare beneficiaries hospitalized for 24 hours or more as outpatients under observation must to be notified in writing that they are outpatients “not later than 36 hours after the time such individual begins receiving such services” as well as the associated “implications for cost-sharing.” Last month, the Centers for Medicare & Medicaid Services (CMS) released the final Medicare Outpatient Observation Notice (MOON) that hospitals will start delivering to patients no later than March 8, 2017 to comply with the law. Patients or their representatives must sign the form to acknowledge receipt.

There is no doubt transparency is important, and patients should be informed when hospitalized as outpatients instead of as inpatients. But the wisdom of the NOTICE Act essentially stops there.

First, Medicare beneficiaries are notified after they have been hospitalized, certainly after they could make an informed decision about accepting observation care. Second, patients or their representative must sign the form, yet it is unclear if this signature holds the patient financially liable, particularly if signed by a representative with no legal authority over the patient’s financial affairs. Third, the form does nothing for a patient’s right to appeal their status. And because observation is a billing distinction, the field at the top of the form requiring hospitals to specify why the patient is not an inpatient is circular reasoning, as patients are outpatients only when they fail to meet Medicare inpatient billing criteria.

Perhaps most importantly, the primary purpose of the NOTICE Act – to inform beneficiaries of the “implications for cost-sharing” when hospitalized under observation – cannot truly be accomplished.

On December 19, 2016, the Department of Health and Human Services Office of Inspector General (OIG) issued the best cost-sharing data available to date describing observation hospital care under the 2-midnight rule. In their report, the OIG used FY 2014 data to compare cost of short outpatient and inpatient stays with similar diagnoses. But because hospitalized outpatients under observation pay a copayment for each individual hospital service, financial risk is not directly correlated with a diagnosis but instead the result of the number, cost, and complexity of services rendered in the hospital, with no limit on the additive amount of per-service deductibles. In contrast, the inpatient deductible is finite per benefit period.

As the OIG report does not provide an accounting of services rendered nor comparison based on equivalent services, it isn’t clear how these cost estimates will help inform discussions when my observation patients receive their MOON.

Dr. Sheehy is a physician and associate professor at the University of Wisconsin School of Medicine and Public Health.

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