On April 18, 2016, the Centers for Medicare & Medicaid Services (“CMS”) released its Hospital Inpatient Prospective Payment System and Long Term Acute Care Hospital Proposed Rule Issues for Fiscal Year 2017, which are set to be published on April 27, 2016. CMS included a proposed rule for implementing the Notice of Observation Treatment and Implication for Care Eligibility (“NOTICE”) Act. The proposed rule requires CMS to develop a standardized form known as the Medicare Outpatient Observation Notice (“MOON”). If the proposals are finalized, the MOON must be presented to, verbally discussed with and signed by certain Medicare patients who are placed in outpatient observation status.  Under the proposed rule, hospitals and critical access hospitals (“CAHs”) will begin utilizing the MOON in August of this year as required by the NOTICE Act. The full text of the proposed rule can be found here.


The NOTICE Act was enacted on August 6, 2015. It requires hospitals, including CAHs, to inform Medicare patients who receive outpatient observation services for more than 24 hours of the observation status and its implications. The notice is required to be given within 36 hours of the beginning of such services or upon release from the hospital if release occurs sooner. CMS was required to provide further guidance on notification requirements to implement the Act and has done so through this proposed rule. For more information on the Act and its requirements, please refer to our prior article here.

Summary of CMS Proposed Rule

CMS proposes to implement the NOTICE Act by revising the Medicare Conditions of Participation (“CoPs”) to specify a process for hospitals and CAHs to notify an individual, verbally and in writing, regarding the individual’s receipt of outpatient observation services and the implications of receiving such services.

If finalized, the rule will require hospitals and CAHs to provide the standardized MOON to patients entitled to Medicare benefits if the patient receives more than 24 hours of outpatient observation services. The MOON:

  • Will include all the informational elements required for written notice under the NOTICE Act;
  • Will include a blank “additional information” section for hospitals and CAHs to provide any additional relevant information should they choose to do so;
  • Must be provided no later than 36 hours after observation services are initiated, or sooner if the individual is transferred, discharged or admitted as an inpatient;
  • Must be accompanied by a verbal explanation of its contents, the requirements for which will be described in forthcoming Medicare manual provisions; and
  • Must be signed by: (i) the patient; (ii) the patient’s representative; or (iii) if the patient/patient representative refuses to sign, the staff member who presented the MOON along with additional required information regarding the signature refusal.

CMS clarified that the NOTICE Act applies only to individuals entitled to Medicare benefits. However, the MOON must be provided to patients entitled to Medicare benefits regardless of whether the outpatient observation services furnished are payable under Medicare. For example, the MOON must be provided to a Medicare Part A patient who has not enrolled in Part B even though the outpatient observation services would not be covered under Medicare Part A for that particular patient. CMS also noted that these notice requirements apply equally to patients with a Medicare Advantage or other Medicare health plan.

The proposed rule also details how requirements will apply to situations where a patient’s inpatient status is changed to outpatient observation due to internal utilization review and where, after discharge, a patient’s inpatient status is found not to be medically reasonable and necessary by CMS reviewers or internal utilization review.

Finally, no appeal rights will be afforded to beneficiaries regarding receipt of the MOON. CMS stated that regulations will be modified to reflect that the issuance of the MOON is not an initial determination triggering appeal rights.

A final rule will be issued no later than August 1, 2016. The NOTICE Act’s requirements take effect on August 6, 2016. An English language version of the MOON has been presented to the Office of Management and Budget for approval and is subject to public review and comment. Once approved, a Spanish language version will also be made available.

Practical Takeaways

Facilities and other interested parties impacted by the NOTICE Act should consider providing comments to CMS on the proposed rule or the MOON when it is made available. Additionally, hospitals and CAHs should consider updating policies and procedures to address the NOTICE Act requirements and plan education for personnel delivering the MOON, explaining its contents and obtaining the requisite signature(s).

Additionally, a handful of states, including New York, Connecticut, Maryland, Pennsylvania and Virginia, already require similar notifications, and facilities should take care to ensure compliance with the new NOTICE Act requirements in addition to applicable state law.