ABQAURP News: NOTICE Act Causes Confusion Over Cost-Sharing

By Charles Locke, MD, CHCQM

ABQAURP Diplomate, ACPA Board Member

On August 6, 2015, President Obama signed into law the Notice of Observation Treatment and Implication for Care Eligibility Act or NOTICE Act (Public Law 114–42). This law creates, one year from signing, a “Medicare requirement for hospital notification of observation status.” While the act initially identifies “observation” incorrectly as a status (observation is a hospital service provided to patients in outpatient status), the law quickly gets its status ducks in a row and stipulates that hospitals must notify patients of their status:

…each individual who receives observation services as an outpatient at such hospital or critical access hospital for more than 24 hours, to provide to such individual not later than 36 hours after the time such individual begins receiving such services (or, if sooner, upon release)

The act also requires that hospitals explain to Medicare beneficiaries:

… the implications of such status on services furnished by the hospital or critical access hospital (including services furnished on an inpatient basis), such as implications for cost-sharing requirements under this title and for subsequent eligibility for coverage under this title for services furnished by a skilled nursing facility.

Leaving aside the point that notifying patients receiving observation services of their status between hours 24 and 36 of their hospitalization doesn’t really fit in our new world of the two-midnight rule, let’s focus on the law’s requirement that hospitals inform Medicare beneficiaries of issues “such as implications for cost-sharing requirements under this title and for subsequent eligibility for coverage under this title for services furnished by a skilled nursing facility.”

Informing Medicare beneficiaries of their eligibility for coverage of services by a skilled nursing facility is straightforward; currently three midnights of hospitalization as an inpatient are required to qualify for this benefit under Medicare. However, explaining cost-sharing requirements under this title, which I interpret to mean differences in beneficiary liability for hospitalization as an “inpatient” vs. “outpatient with observation services”, is not so easy. In testimony to the House Subcommittee on Health, Jodi Nudleman, regional inspector general for the office of evaluation and inspections, reported

Beneficiaries also paid far more for short inpatient stays than for observation stays, on average.

Beneficiaries paid almost two times more for a short inpatient stay than an observation stay on average—that is, $725 per short inpatient stay compared to $401 per observation stay. For all but two of the most common reasons for treatment, beneficiaries paid more, on average, for short inpatient stays than for observation stays. The two exceptions were stays for circulatory disorders and for coronary stent insertions. Only 6 percent of beneficiaries in observation stays paid more than they would have paid had they been in an inpatient stay. (Current hospital issues, 2014)

In an article published recently in The Journal of Hospital Medicine, Kangovi, Cafardi, Smith, Kulkarni,  and Grande (2015) looked at Medicare beneficiary liability for those patients who had two or more outpatient hospitalizations with observation in a 60-day period. The authors found that member liability exceeded the inpatient deductible ($1,100 at the time of the data period) only 26.6% of the time. For the first observation visit, member liability exceeded $1,100 just 9.2% of the time. The study looked at patients who had both Medicare Part A and Part B coverage. In an accompanying editorial, Sheehy, Boswell, Caponi, and Locke (2015) commended the study but pointed out a number of limitations. Among the limitations, the Kangovi study did not include patients with both an inpatient stay and an observation stay in the same 60-day benefit period and used data that predated the two-midnight rule, which became effective October 1, 2013. This second limitation is perhaps the most important; prolonged (i.e., greater than two midnights) outpatient hospitalizations, which are likely associated with a higher member liability, should largely have been eliminated by the two-midnight rule. CMS has made it clear that patients with medically necessary hospitalizations of two midnights or more should now be admitted as inpatients.

How should hospitals and doctors comply with the NOTICE Act’s requirement (effective in August 2016) to inform Medicare beneficiaries hospitalized as “outpatient with observation services” of the “implications for cost-sharing requirements”? Kangovi’s findings are consistent with the 2014 OIG report in that, in most cases, member liability is higher for inpatient than outpatient stays. Of course, “most” does not mean “all,” and the member liability of individual cases will continue to depend on the services used; the beneficiary’s combination of Medicare Part A, B, D, and supplemental insurance coverage; and the specific co-pay, deductible, and covered benefits of each insurance contract. Hospitals and physicians will also need to distinguish those patients that have traditional (fee for service) Medicare as their primary insurance from those that have either a Medicare Advantage plan (Medicare Part C) or traditional Medicare as a secondary insurance. Not only could patient liability be different in each of these cases, it is unclear if the notification of the implications for cost-sharing requirements of the NOTICE Act even applies to patients covered under Medicare Advantage plans.

Current hospital issues in the Medicare program: Hearing before the House Committee on Ways and Means, Subcommittee on Health. (2014, May 20). Retrieved from http://oig.hhs.gov/testimony/docs/2014/Nudelman_testimony_05202014.pdf

 

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