A few years ago we told you about the perils of hospitals placing patients on Observation Status, rather than admitting them as a “regular patients.” As a reminder, a patient on Observation Status and a patient who has been admitted may be virtually indistinguishable. They are often in similar rooms, receiving similar treatment, for similar illnesses, for similar periods of time. Why the distinction?  Well, hospitals are now subject to federal sanctions and penalties for “medically unnecessary” admissions, as well for patients that are readmitted to a hospital within 30 days of discharge.  Putting patients on Observation Status allows hospitals to skirt any troubles that might come along with admissions and it’s no surprise hospitals are using all tools at their disposal to avoid sanctions and penalties.

Unfortunately for patients, the financial consequences of being on Observation Status can be significant. Medicare recipients in the hospital under Observation Status will be billed for some costs that would have been covered by Medicare Part A if they had been admitted, the most notable being prescription drugs. Additionally, if a Medicare patient is transferred to skilled nursing following a hospital admission, the first 100 days are covered by Medicare.  If a patient’s hospital stay is under Observation Status, Medicare will not provide any payment for the skilled nursing facility.

Although the practice of placing patients on Observation Status has diminished as public and politician outcry has grown, the issue still exists. To further combat the problem, President Obama recently signed into law the Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act.   This law will go into effect August 6, 2016 and will require hospitals to:

-Notify patients receiving outpatient treatment (on Observation Status) for more than 24 hours of their outpatient status. The notice must be provided within 36 hours of the outpatient services beginning.

-The Notice must explain the patient’s status as an outpatient rather than inpatient and why the patient received the status

-The Notice must include the financial implications of outpatient status, in particular the cost sharing requirements and eligibility for coverage of any stay in a skilled nursing facility

-The Notice must be written in plain language and be made available in the language understood by the patient.

-The Notice must be signed by the patient or their representative.

This law will not cure the problem of hospitals inappropriately placing people on Observation Status, but it will allow patients to make informed decisions about care and treatment, taking into account the costs that the various treatment options will incur. Remember, however, that this law does not go into effect until August of 2016.  If you or a loved one is in the hospital before then, be sure to ask whether the stay is under Observation Status or whether there has been a formal Admission.


Barry M. Meyers

David M. Neubeck 

Elder Law Offices of Barry M. Meyers 



 DISCLAIMER: The content of this newsletter is: for information purposes only, subject to change by government agencies, should not be relied upon as current, and, does not constitute legal advice. Reading this newsletter does not establish an attorney-client relationship.