Kelly, TimAs the number of patients admitted for observation in the emergency department (ED) grows, ED physicians and staff should keep in mind the new rule established by the Centers for Medicare & Medicaid Services (CMS) requiring that all patients in observation be notified of their potential out-of-pocket financial liability.

The rule, set forth in the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act), requires that hospitals provide written and oral communication to patients receiving observation services under outpatient status for more than 24 hours. This notification must occur within 36 hours of the start of their observation services. The hospital also must complete for these patients a new standardized form known as the Medicare Outpatient Observation Notice (MOON).

However, the law does not require hospitals or physicians to wait any specific amount of time before giving patients the MOON. In other words, ED physicians can ensure that patients admitted to observation are fully informed of their financial liability and rights immediately after entering the order for admission. This step ensures hospitals are compliant and gives patients adequate time to make a fully informed decision about their care, thereby improving patient satisfaction and possibly decreasing bad debt.

The ED Physician’s Role

Specifically, the MOON requires that hospitals inform patients of three important points:

  • Their observation care is deemed outpatient service and thus may result in higher copayments.
  • Prescription drugs are not covered under Medicare Part B, the coverage that applies to beneficiaries receiving outpatient services.
  • Outpatient status raises specific financial implications when it comes to subsequent Medicare coverage of care in a skilled nursing facility (SNF). Specifically, the time spent in outpatient observation does not count toward the three-day minimum inpatient stay that’s required before Medicare Part A will pay for SNF care.

The MOON itself is rather straightforward, but hospitals need to develop standards that ensure accurate and timely execution as part of the observation admission process. In most instances, the ED physician will not need to be involved in presenting the MOON and explaining the patient’s personal financial responsibilities. However, the document may prompt patient questions or decisions that require the ED physician’s intervention.

In situations where observation is recommended, ED physicians can explain the advantages of staying at the hospital, such as the opportunity to monitor certain signs or symptoms that could be missed at home. If a patient chooses to leave, a structured call-back program or an automated system capable of consistent and efficient next-day follow-up could help ensure care continuity and identify any worsening of the patient’s condition.

The Effect on Hospitals

Because the ED physician does not need to be involved with administering the MOON, hospitals may incorporate this form into workflows surrounding similar forms, such as the advance beneficiary notice of noncoverage (ABN) or a hospital-issued notice of noncoverage (HINN). It is important to keep in mind that the NOTICE Act requires both the execution of the MOON document and an accompanying conversation with the patient. Therefore, ED staff, including physicians, should understand the form’s purpose and how best to discuss it with patients and fulfill the requirement of explaining to patients that are being kept for observation under outpatient status, why they are not being admitted as inpatients, and what that means for them from a financial standpoint.

Part of the discussion inevitably includes the patient’s potential out-of-pocket costs. ED physicians might want to have a medical assistant on hand to present a price list of observation services and the typical tests that could potentially be ordered. If such a list is not available, hospital leaders should consider developing one or compiling a database to facilitate these conversations. The impetus for such steps will only increase as more state legislatures press for greater price transparency.

The benefits of clearly communicated financial responsibility extend not only to patient satisfaction, but also to collections. Today, many hospitals are finding that some patients with high-deductible health plans have trouble meeting their financial obligations. Although the MOON applies only to observation services, even a small reduction in unpaid debt among Medicare beneficiaries could quickly justify the time and resources needed to take a proactive approach to its implementation.

Fully Informed and Shared Decision Making

The MOON is a tool to deliver information to patients receiving observation services, and to facilitate financial conversations that will only become more prevalent as patient payment responsibility increases. By creating better addressing patient expectations around care delivery and financial responsibility earlier in the process, hospitals can obtain higher patient satisfaction scores while reducing instances of uncompensated care. 


Timothy Kelly, MS, MBA, is a director, Taylor Healthcare, Atlanta.

Publication Date: Wednesday, January 03, 2018