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CMS Issues Final Rule Implementing the Medicare Outpatient Observation Notice

August 8, 2016

On August 2, 2016, the Centers for Medicare and Medicaid Services (“CMS”) issued a Final Rule implementing the Notice Act’s requirement to provide notice of a patient’s outpatient observation status. The timing of the release of the Final Rule is of particular importance to hospitals and critical access hospitals because the Notice Act technically required that Medicare eligible patients receive a notice of their outpatient observation status starting on August 6, 2016. However, the Final Rule clarifies that the uniform Medicare Outpatient Observation Notice (“MOON”) has not yet been approved for use.  CMS clarifies that the MOON is on a separate approval track from the regulation, following the established OMB notice approval process and is being published for the 30 day comment period at the same time as the Final Rule.  CMS expects approval of the MOON around the time the implementing regulations are effective, which is on October 1, 2016.  Therefore, hospital implementation will begin sometime after the effective date of the Final Rule and will be announced on the CMS Beneficiary Notices Initiative Website. Hospitals will have to implement the use of the MOON no later than 90 days from the date of PRA approval of the MOON. Under the Final Rule, the MOON, as finally approved through the OMB process, will be the required written notice that hospitals must use, and hospitals must also provide an oral explanation of the patient’s observation status.

CMS, in response to numerous comments, attempted to simplify the language on the MOON from the initial draft CMS promulgated last April. The MOON no longer requires the entry of a physician’s name, date, and time. Further, the MOON now includes a free form text area for hospitals to list the reason(s) the patient is not an inpatient. According to CMS, the MOON contains all information required under the Notice Act and the Final Rule to alert patients that their observation stay may impact their coverage for services under Medicare or a Medicare Advantage Plan, including co-payments, SNF coverage requiring a 3-day qualifying inpatient stay, and prescription drug coverage. As with the initial draft MOON, the updated form still advises patients to ask hospital staff or to call 1-800-MEDICARE if the patients have questions about observation services. But, CMS removed information directing patients to contact the Quality Improvement Organization with any questions.

The commentary to the Final Rule provides valuable information for hospitals that are located in states that have enacted their own outpatient or observation notice requirements. Many of these state laws require notice to any outpatient whose stay is expected to exceed 24 hours or who is placed in a room outside of the emergency department and provided meals. Commentators asked if CMS will require the provision of the MOON notice and an oral explanation to an outpatient, who is not placed under observation pursuant to a physician’s order, but whose stay exceeds 24 hours. CMS responded that the Notice Act only requires such notice to patients placed under and receiving observation services. Therefore, the MOON and an oral explanation does not need to be provided to any outpatient whose stay exceeds 24 hours, but only those receiving physician ordered observation services. But in many states notice must still be provided to outpatients whose stay exceeds or is expected to exceed 24 hours even if CMS is not mandating the MOON.

Further, CMS noted that the MOON may be provided to comply with state law requirements, and hospitals may use a free form text area for Additional Information to list any state requirements that are not addressed in the MOON. CMS cautioned that it is each hospital’s duty to ensure the MOON meets state requirements or can be amended to include any state specific criteria. In addition to amending the MOON, CMS stated that a hospital may append a state specific notice to the MOON to be provided to patients.

Finally, under the Notice Act and the Final Rule, the MOON and an oral explanation must be provided to any patient who is receiving observation services pursuant to a physician order for more than 24 hours but no later than 36 hours after initiation of observation services. CMS acknowledged that many states actually require notice of outpatient or observation status prior to the patient actually receiving services for more than 24 hours. CMS noted that if a MOON is provided to a patient prior to the patient actually receiving observation services for 24 hours to meet a state timing requirement, the hospital will have complied with the Notice Act and Final Rule requirements.

Providers should ensure they initiate policies and training to comply with CMS’s MOON requirements. For hospitals located in states with their own observation or outpatient notice requirements, hospitals should carefully review the Final Rule and the MOON to determine if the MOON will meet their state notice requirements or if additional information can be added to the MOON to comply with both federal and state requirements.

If you have any questions about the CMS Final Rule regarding the MOON or need assistance implementing changes to your organization’s policies and procedures for implementing the MOON, please contact a member of HDJN’s Compliance Team.

The information contained in this advisory is for general educational purposes only. It is presented with the understanding that neither the author nor Hancock, Daniel, Johnson & Nagle, PC, is offering any legal or other professional services. Since the law in many areas is complex and can change rapidly, this information may not apply to a given factual situation and can become outdated. Individuals desiring legal advice should consult legal counsel for up-to-date and fact-specific advice. Under no circumstances will the author or Hancock, Daniel, Johnson & Nagle, PC be liable for any direct, indirect, or consequential damages resulting from the use of this material.