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Observation Status Bill in Senate Doesn’t Solve Policy Problem


As you may have heard, H.R. 876, a bill unanimously passed in the House recently, requires a hospital to give adequate oral and written notification of a patient’s observation status. The bill has now moved to the Senate.

Notice of Observation Treatment and Implication for Care Eligibility Act,” known as the NOTICE Act, was sponsored by Rep. Lloyd Doggett (D-Texas) and co-sponsored by Rep. Earl Blumenauer (D-Ore.), Rep. Charles Rangel (D-N.Y.), and Rep. Todd Young (R-Ind.), all known to be admirable patient care advocates.

The bill proposes requiring that any patient who has been classified as observation status for more than 24 hours be given oral and written notice within 36 hours of that classification. That notice must include the reason for and implications of that status, including lack of coverage for services and cost sharing under Medicare Part B, as well as the name and title of the hospital staff who gave the oral notification. Written notification must be signed by the patient or, if the patient refuses, by the staff who presented it.

Although it is essential that patients are aware of observation status and its implications, this bill would not solve the underlying problem and would only create divisions between patients and the staff caring for them. Two issues stand out:

  1. Observation status is not currently a medical determination; and
  2. Hospitalized medical patients should not be considered outpatients.

When a patient is admitted to the hospital, acute inpatient versus observation status is often assigned by a non-clinician in the form of a “verbal” order before the attending hospitalist meets or even hears of the patient. This order must be signed promptly by that hospitalist to prevent penalization for lack of medical record compliance. Increasingly, more of these orders are for observation status, as hospitals fear bounty-hunting recovery audit contractors (RACs) in pursuit of “Medicare fraud.”

Although it is essential that patients are aware of observation status and its implications, [H.R. 876] would not solve the underlying problem and would only create divisions between patients and the staff caring for them.

Under H.R. 876, the situation is further intensified for both clinicians and patients. Picture yourself in the middle of a busy day at your hospital, admitting and discharging patients, stabilizing critically ill patients, and discussing goals of care with patients given life-altering diagnoses. Your pager goes off.

“Mrs. H. on 6th Floor East wants to talk to you right away,” the conversation starts. Mrs. H is in tears, and her family is angry. “We were just told that Grandma is observation status, not admitted to the hospital! This makes no sense!”

Forty-five minutes later, you have agreed, commiserated, and let them know you have absolutely no control over the designation. To you, Mrs. H. is medically ill enough to require hospitalization, and she and her family agree, but Medicare regulations and fear of RAC audits keep her on observation status. What have you accomplished during that time?

H.R. 876 is not the problem, and it is clearly well intentioned. I regularly inform patients when I’m aware of their observation status, because it’s a lousy situation for the patient. We should all be doing as much.

But H.R. 876 is not the solution, either, because it does not address the core problems with observation policy. Now is the time for us all to step forward, voicing our support of SHM as it works to change observation status as we now know it. It is not an easy task. The ultimate goal is to be able to consider all hospitalized medical patients what they really are: inpatients.

Dr. Johnson is clinical associate professor in the department of internal medicine at the University of Iowa Carver College of Medicine. She is a member of the SHM Public Policy Committee and was one of the authors of the SHM PPC white paper on observation status released in July 2014.

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