Recently the Center for Medicare & Medicaid Services (CMS) issued new proposed rules implementing the Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act) that affect notifications patients receive regarding their status during hospital care. Hospital patients are classified as either receiving inpatient or outpatient care. Which category a patient is in affects what Medicare services a patient is eligible for.

Difference Between Inpatient and Outpatient Care

Outpatient care is generally regarded as treatment received from an emergency room or when being kept in a hospital for observation. Inpatient care is generally regarded as medical treatment that necessitates hospital care. A doctor’s order to admit the patient to the hospital is what triggers the start of inpatient care. Once the medically necessary hospital treatment has been received, then the patient could be reclassified as receiving outpatient care to be observed during the recovery process.

The problem with this distinction between inpatient and outpatient care is that the distinction is often meaningless in terms of the actual level of treatment received. Both inpatients and outpatients can stay overnight in the hospital, receive treatments from doctors, and get full hospital services. The distinction can even come down to whether or not a doctor specifically ordered that a patient be admitted to inpatient care regardless of the level of care ultimately received.

Medicare Coverage

Between Medicare Part A and Part B, Medicare covers the cost of both inpatient and outpatient hospital care.

However the distinction between inpatient and outpatient care matters if a patient needs a stay in a skilled nursing facility for further recovery. Only patients who receive three days of inpatient care are eligible to get Medicare coverage for a subsequent stay in a skilled nursing facility.


The new proposed rules under the NOTICE Act create a new patient notification, the Medicare Outpatient Observation Notice (MOON). The Center for Medicare Advocacy has found aspects of the new notification problematic. First, the notice does not require a specific reason why a patient has been classified as outpatient rather than inpatient. This runs contrary to both other notifications, which detail specific reasons that a patient would be denied Medicare coverage, and to the NOTICE Act’s own legislative history which sought that patients would receive meaningful disclosure of their hospital status. Another problem for patients is that the determination of outpatient status is not appealable. This also runs contrary to other Medicare coverage determinations which do provide for the right to appeal.

Ultimately, the new rules do little to meaningfully inform patients of their hospital status or remove the often arbitrary distinction between inpatient and outpatient care that leaves many patients without the extended Medicare coverage they would otherwise be entitled to.

The comment period for the new rules ends on June 17, 2016 and the new rules are currently scheduled to go into effect on August 16, 2016.