The NOTICE Act (Notice of Observation Treatment and Implication for Care Eligibility) has been signed into law as of August 6, 2015. The Act requires hospitals to provide oral and written notice to patients within 36 hours of being placed in observation care (or, upon discharge, if sooner). The notice must explain to patients, in plain language, that they have not been admitted as an inpatient, the reasons, and the financial implications. The implications include:

• higher cost-sharing requirements for outpatient services than inpatient services; and
• not meeting the requirement for coverage of skilled nursing facility services of a hospital inpatient stay of at least three days.

Several states, including New York, Connecticut, Maryland, Pennsylvania, and Virginia already require observation care notices. Congress, in overwhelmingly approving the legislation, expressed concern that patients did not understand the difference between observation and inpatient status and the financial costs. The Medicare program has seen a steady increase in observation care. Medicare had proposed in 2013 the “two-midnight rule” requiring inpatient admission if the physician anticipated the patient would spend at least two days (midnights) in the hospital. The rule was delayed because of concerns that its enforcement would be confusing and arbitrary.

Hospitals must comply with the notice requirements beginning in August 2016. The Department of Health and Human Services is expected to adopt regulations to describe more specific requirements for the oral and written notice of observation status.