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On August 6, 2015 President Obama signed a bill that requires hospitals to notify Medicare patients if they are in the hospital under “observation status.” The bill is meant to rectify the problem that Medicare beneficiaries face when they learn that Medicare will not cover needed rehabilitation services in a skilled nursing home because of their “observation status” at the hospital. In order for Medicare to pay for a period of rehabilitation at a skilled nursing facility, a patient is required to have a three night hospital admission. After a three night stay, Medicare pays 100% for the first 20 days in a nursing home and the next 80 days at 80%. Observation status days do not count. Beneficiaries under observation also face higher out-of-pocket costs, including copayments and prescription drug charges that are not covered for outpatient stays.

The new law, called the Notice of Observation Treatment and Care Eligibility Act, requires hospitals to notify Medicare patients that they are receiving observations services. The notice must be received upon discharge or within 36 hours if they are under observations for more than 24 hours of the hospital stay. The notification would explain that the patient will be subject to cost sharing that apply to outpatient services. The notice would also say that the hospitalization will not count toward the three night requirement to receive subsequent care in a nursing home. Specifically the notification must detail the denial of admission, the potential financial implications and the reason for the denial of admission. The Federal law will not take effect until August 6, 2016.

Florida passed similar legislation this year requiring that “observation status” be documented in the patient’s discharge papers. Florida’s law went into effect on July 1, 2015.

While both of these laws should help to avoid the surprise, they fall short of really rectifying the problem for seniors. No appeal process exists for patients to challenge their admission status. Ultimately, the law should be changed to allow rehabilitation services regardless of admission status.