Updated on: November 29, -0001

State Observation Notices: Why Can’t They all just Get Along?

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Original story posted on: October 14, 2015

The Notice of Observation, Treatment, and Implication for Care Eligibility (NOTICE) Act, requiring written and verbal notice to all observation patients, became the law of the land as of August 2015.

But the Act does not solve the problem called “observation” (with apologies to Julie Andrews). First, the Act only requires notification to patients that they are not being admitted as inpatients; it does nothing to stop the long observation stays, nor does it give beneficiaries immediate appeal rights. Furthermore, the Act gives hospitals a year to implement its provisions, and a representative of the Centers for Medicare & Medicaid Services (CMS) recently stated during an open door forum call that the agency will be developing a standardized form and instructions – so hospitals would be wise to not expend any effort on this until that happens.  

But as this Act was being pondered on Capitol Hill, many states got tired of waiting and took it upon themselves to develop their own observation notice policies. But predictably, each state developed its policy in its own world, ignoring what was happening in other states. As a result, we now have a cornucopia of policies with a wide variety of criteria, many of which conflict directly with the NOTICE Act.

Let’s start with the obvious error made by almost every state: observation is being considered a service provided to outpatients and not a status. A patient who spends the night in the hospital with chest pain is an outpatient receiving observation services, whereas the patient that spends the night after a scheduled laparoscopic cholecystectomy is an outpatient but not receiving observation services.

To make it even more complex, consider the following scenario: a patient presents with chest pain and is placed as an outpatient with observation. If that patient goes to the catheterization lab that same day and receives a stent, his or her observation services end and they spend the night as an outpatient without observation.

The same would apply to the patient who presents with abdominal pain and is placed in observation but soon thereafter is found to have acute cholecystitis and taken to the OR. Once the patient leaves the hospital room, observation services would end and  routine outpatient services begin. And to add another layer of complexity, if that patient who had a scheduled laparoscopic cholecystectomy as an outpatient was not able to be discharged the next morning as scheduled due to delayed recovery or a complication, the physician at that point would order observation services.

So, how did the states do with their policies? Let’s start with New York, since New York is the best at everything (or so they think.) Bill S3926A-2013, signed into law on Oct. 21, 2013, simply requires that every patient placed in observation status be given written and verbal notice of their status within 24 hours. Putting aside that observation is not a status, this means that any patient in New York who receives any observation services gets the notice. In our examples, the chest pain patients would all get the notice, and the cholecystitis patient would get one, but the elective surgery patient would not get one unless they required observation after their normal recovery. So there could be two outpatients in the same room recovering from the same surgery, one of whom gets the notice and one who does not.

How did Pennsylvania and Maryland do? Maryland passed Senate bill 195 on May 2, 2013 and Pennsylvania passed 2014 Act 169 on Oct. 22, 2014. It appears that these two states get along, as the wording in their state laws is nearly identical. But while imitation is often the sincerest form of flattery, in this case Pennsylvania copied most of Maryland’s law but changed one crucial point. Both require that notice be given to outpatients who “receive on-site services from the hospital for more than 23 consecutive hours.” This allows some leeway, as a patient who goes home in under 23 hours does not need to receive a notice, but Pennsylvania requires notice to be given to all outpatients, even those who do not receive observation services.

Maryland, on the other hand, limits the notification to patients who “are classified at the hospital for observation.” So all patients in our example would get the notice in Pennsylvania, but only those with an actual order for observation would get the notice in Maryland. Unlike New York, there is no time limit on providing this notice, but one would assume that hospitals would provide it prior to discharge. It also should be noted that in both states, the clock to determine if notice is required begins when the patient first begins receiving services at the hospital, either in the emergency department or an outpatient department such as surgery and not when the observation services begin. This adds one more clock for these hospitals to track, in addition to the two-midnight clock, the observation hour clock for billing observation hours, and the three-day clock for qualification for part A skilled nursing facility coverage.

In addition, Connecticut passed Public Act 14-180, which took effect on Oct. 1, 2014. This bill required notice within 24 hours of placement in observation status unless the patient “has been discharged or has left the hospital prior to the expiration of the 24-hour period.” They do not distinguish the circumstances under which a patient can leave a hospital without being discharged, but perhaps they do not consider patients who leave against medical advice or who are transferred as discharged.

Vermont takes Connecticut’s law a step further. In Act 54, passed in 2015, notice is required for all patients placed in observation status within 24 hours, but the caveat exists that if the patient then is admitted as an inpatient and the observation stay may be billed as part of the inpatient stay, notice need not be given. That means that critical access hospitals (CAHs) still must give the observation notice to patients who are admitted as inpatient, since the observation time is not bundled into the inpatient admission as with non-CAH hospitals.

And the most recent state to pass such a law is Illinois, where Public Act 099-0383 was passed on Aug. 17, 2015. It simply requires notice to all observation patients within 24 hours. Once again, the outpatient surgery patients are excluded unless and until they need observation services.

So where does that leave these states with the impending implementation of the NOTICE Act? That will require notice to all patients who receive more than 24 hours of observation, and it allows hospitals a total of 36 hours to provide that notice. We can only hope that state legislators will work with the state hospital associations to compare the federal law to the state law and come up with a workable solution.  It would be a shame if Maryland hospitals had to provide the state notice after 23 total hours in the hospital and then the federal notice after 24 hours of observation.

Then of course there is New Jersey, where Title 8, Chapter 43G, Subchapter 32.22 limits observation to a total stay of 24 hours or less, which totally contradicts federal law, but that’s for another day.

About the Author:

Ronald Hirsch, MD, FACP, CHCQM is vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the American Case Management Association and a Fellow of the American College of Physicians. 

Contact the Author 

RHirsch@accretivehealth.com 

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The Notice of Observation, Treatment, and Implication for Care Eligibility (NOTICE) Act,

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