Obama Signs Law Requiring Hospitals to Warn of Costly Medicare Loophole

President Obama has signed a new law intended to prevent Medicare beneficiaries from spending days in a hospital only to find that they hadn’t been admitted to the hospital at all – they were only under “observation.” This is important because Medicare covers nursing home stays entirely for the first 20 days, but only if the patient was first admitted to a hospital as an inpatient for at least three days. Many beneficiaries are being transferred to nursing homes only to find that because they were hospital outpatients all along, they must pick up the tab for the subsequent nursing home stay — Medicare will pay none of it.

The new law, the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act, does not eliminate the practice of placing patients under “observation” for extended periods, but it does require hospitals to notify patients who are under observation for more than 24 hours of their outpatient status within 36 hours, or upon discharge if that occurs sooner. The notification will have to explain to patients that because they are receiving outpatient, not inpatient, care, their hospital stay will not count toward the three-day inpatient stay requirement and that they will be subject to Medicare’s outpatient cost-sharing requirements. The law does not make hospital observation stays count towards Medicare’s three-day requirement, as some lawmakers had proposed.

The NOTICE Act will take effect one year from the date it was signed, which was August 6, 2015.

For the text of the NOTICE Act, click here.

For more about Medicare, click here.