On July 27, the Senate unanimously approved the Notice of Observation Treatment and Implication for Care Eligibility ("NOTICE") Act, which was earlier approved unanimously by the House of Representatives in March. The bipartisan legislation will proceed to the President and is expected to be signed into law. The NOTICE Act makes changes to hospital requirements regarding Medicare patients who have been placed in observation status rather than being admitted to the hospital.


Observation status is a classification that hospitals use when a patient is not well enough to be released but not sick enough to be admitted. In recent years, CMS data has shown an upward trend in the use of observation status. To address the prevalent use of observation status, Medicare officials issued the two-midnight rule in 2013, which required hospitals to admit patients who doctors anticipated would spend at least two midnights at the hospital. While hospitals were required to implement the two-midnight rule, its enforcement was delayed by Congress due to concerns regarding its implementation.

The NOTICE Act requires hospitals, including critical access hospitals, to inform Medicare patients who receive observation services as an outpatient for more than 24 hours of such status and its implications within 36 hours of the beginning of such services or upon release from the hospital if release occurs sooner. The notification requirement includes both a written and oral component.


The written notice must:

  • Be written in plain language;
  • Be available in all appropriate languages;
  • Explain the following: (a) "the status of the individual as an outpatient receiving observation services and not as an inpatient of the hospital or critical access hospital and the reasons for such status of such individual;" and (b) "the implications of such status on services furnished by the hospital or critical access hospital (including services furnished on an inpatient basis)," including implications for cost-sharing requirements and subsequent eligibility for coverage for service furnished by a skilled nursing facility; and
  • Be signed by the individual or the individual's representative acknowledging receipt. If the individual or the individual's representative refuses to sign, it must be signed by the staff member who presented the written notification and include: (a) the name and title of such staff member; (b) certification that the notice was presented; and (c) the date and time it was presented.

The written notice's content and form is to be further described by the U.S. Secretary of Health and Human Services ("Secretary") pursuant to rulemaking. Any additional information or specific language the Secretary requires to be included in the written notice will need to be incorporated into such notice.

Additionally, the NOTICE Act requires that the written notification be accompanied by an oral explanation of its contents. The oral explanation is to be documented with the parameters of such documentation to be delineated by the Secretary.


The NOTICE Act's aim appears to be to ensure that patients are made aware of the differences that arise when a patient is placed in outpatient observation status rather than admitted as an inpatient both during his or her time at the hospital and during post-acute care, if required. For example, cost-sharing amounts for certain items and services administered to a patient placed in outpatient observation status, such as pharmaceuticals, may be significantly higher than if the patient were an admitted inpatient. In addition, Medicare may not cover the cost of post-acute care in a skilled nursing facility for a patient who was placed in outpatient observation status rather than admitted as an inpatient. Currently, Medicare requires a patient to spend three consecutive midnights as an admitted hospital patient to qualify for coverage of post-acute care in a skilled nursing facility. Outpatient observation days do not count toward coverage eligibility even if the patient is admitted to the hospital for a portion of his or her stay.

Practical Takeaway

The NOTICE Act's requirements will become effective 12 months after the legislation is signed into law. As indicated above, the President is expected to sign the legislation shortly, meaning the requirement would become effective sometime next year.

A handful of states, including New York, Connecticut, Maryland, Pennsylvania and Virginia, already require similar notifications, but the NOTICE Act's requirements apply nationwide with regard to Medicare patients. Hospitals in states with their own notification laws will want to ensure they are compliant with both state and federal requirements.