New Medicare hospital rule regarding observation notification went into effect Wednesday, 3/8/2017. Be prepared!


On Monday, April 3rd, the Toni Says Medicare team attended the MACRA informational Medicare meeting which informed insurance agents in the Medicare market about the changes to be taking place regarding Medicare Plans F and C.

Little did we know that there will be a major change to hospital admission that will change the way a hospital stay is classified with Medicare.

The new Medicare rule called Medicare Outpatient Observation Notice (MOON) started Wednesday, March 8th, and applies those with an Original Medicare hospital stay. It does not apply to Medicare Advantage plans.

It is estimated that MOON new Medicare rule will impact over 1 million Medicare beneficiaries, making this a significant change in regards to a hospital stay.

Beginning March 8th, hospitals and critical access hospitals must provide the MOON (Medicare Outpatient Observation Notice) to Medicare beneficiaries or their legal representative if receiving observation services as an outpatient for more than 24 hours.  The MOON must be provided in written form that is signed and dated with an oral explanation from the facility no later than 36 hours from the time the Medicare patient begins receiving outpatient observation services. This time limit is considered the new two midnight stay observation policy.

The National Law Review’s December 21, 2016, article regarding the CMS release of MOON states: “Failure to provide the MOON to Medicare beneficiaries under Observation is considered a violation of the hospital’s Medicare provider agreement and could result in termination of the hospital’s Medicare provider agreement.”  Hospitals will be documenting that the form has been explained orally to the Medicare patient and signed.

Observation patients are classified as outpatient which falls under Medicare Part B and not Medicare Part A, which is Hospital or Inpatient hospital stay.  Medicare Part A deductible is a set amount and Medicare Part B costs more because it is a straight 20% of the Medicare approved amount after one meets the current Part B deductible.

The MOON notice eliminates the Medicare patient’s ability to appeal the Medicare Observation decision and request to be “formally admitted” as a hospital in-patient.

The notice seeks to eliminate any surprises Medicare beneficiaries who are classified as under Observation might experience after receiving:

  1. Large out-of-pocket costs for a hospital stay in which they received outpatient observation services, but were not admitted as in-patients. Costs will be processed under Medicare Part B.
  2. Learning that time spent under observation does not count toward their eligibility of Skilled Nursing covered under Medicare Part A(hospital).Observation is processed under Medicare Part B(medical), which eliminates the 3-day minimum, “formally admitted” medically necessary, inpatient hospital stay with 4th day discharged.

If Medicare patient is not enrolled in a Medicare Prescription Drug Part D plan and the hospital stay falls in “under observation” or MOON, one may pay for the drugs administered because the outpatient stay is under Part B which does not cover prescriptions given orally.  Part B (Medical Insurance) covers IV (intravenous infusion) drugs and the hospital stay was considered outpatient care and not a Medicare Part A inpatient hospital stay.

Medicare Part B generally covers care that you receive in a hospital outpatient setting like an emergency room, observation unit, and outpatient surgery center.

With the new Medicare rule, now one does not have to worry regarding whether one is an outpatient.

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