The Centers for Medicare & Medicaid Services (“CMS”) continues to scrutinize beneficiary transparency, medical necessity and data‑driven oversight of hospital billing and utilization. This scrutiny means continued compliance risk for hospitals. Two long‑standing compliance tools remain especially relevant for hospital leadership: the Medicare Outpatient Observation Notice (“MOON”) and the Program for Evaluating Payment Patterns Electronic Report (“PEPPER”). Recent CMS communications reaffirm expectations related to proper MOON delivery and highlight PEPPER as an active monitoring mechanism hospitals should be using proactively for benchmarking and risk mitigation.
This alert summarizes current CMS expectations and outlines practical tips compliance professionals should consider to reduce audit and enforcement risk.
MOON
CMS Requirements
CMS requires hospitals to deliver the MOON to Medicare beneficiaries who:
- Receive outpatient observation services for more than 24 hours; and
- Are not admitted as hospital inpatients.
The MOON must:
- Be delivered no later than 36 hours after observation services begin, or sooner if the patient is discharged earlier; and
- Clearly explain the patient’s outpatient status and its financial implications, including:
- Coverage under Medicare Part B instead of Part A;
- Potential beneficiary cost‑sharing; and
- Impact on eligibility for skilled nursing facility coverage following discharge.
CMS plans to revise and simplify the MOON form in early 2026, pending approval by the Office of Management and Budget. The new form is intended to improve clarity and readability for beneficiaries and will not materially change the underlying policy requirements. Until the updated form becomes effective, hospitals are expected to continue using the current, expired MOON version in accordance with CMS guidance.
Compliance Risk Considerations
- Failure to deliver the MOON timely and accurately remains a frequent audit finding.
- Inconsistent observation versus inpatient determinations elevate beneficiary complaints and appeal risk.
- Poor alignment between utilization review decisions and MOON delivery creates documentation gaps.
Compliance Tips
- Validate MOON workflows against CMS timing requirements;
- Ensure utilization review and registration teams are aligned on observation status triggers; and
- Prepare operationally for transition to the revised MOON form.
PEPPER Reports
What Is PEPPER?
PEPPER is a free, CMS‑sponsored comparative analytics report designed to help hospitals identify potentially improper payment risks. It compares a hospital’s billing patterns to national, state and peer benchmarks across targeted risk areas.
CMS has confirmed that:
- PEPPER is actively available following a contractor transition;
- Reports can be accessed by authorized hospital users through the PEPPER portal; and
- The current PEPPER includes the same risk target areas as prior versions, such as:
- Short stays;
- One‑day inpatient stays; and
- Medical necessity‑sensitive Diagnosis-Related Groups.
Why PEPPER Matters
CMS, Medicare Administrative Contractors and other oversight entities use data analytics to prioritize audits. PEPPER gives hospitals advance visibility into the same types of utilization patterns that may attract external review.
Hospitals that do not routinely review and act on PEPPER data risk:
- Being unprepared for medical necessity audits;
- Missing the early warning signs of documentation or admission status issues; and
- Potentially demonstrating weak compliance oversight, if audited.
Compliance Tips
- Assign clear ownership for PEPPER retrieval, review, and documentation;
- Incorporate PEPPER findings into internal audit and utilization review and audit plans;
- Track trends over time rather than reacting to single‑period outliers; and
- Document compliance oversight and corrective actions tied to PEPPER results.
Practical Takeaways
- MOON compliance remains mandatory despite the pending form update; process discipline is critical!
- PEPPER should not be considered optional since it is a core CMS transparency and compliance tool.
- Hospitals should treat both MOON and PEPPER as integrated components of their broader utilization management, compliance and audit readiness strategies.
Strong governance, documentation and proactive monitoring remain the most effective defenses against audits, payment denials and beneficiary complaints.
If you have any questions or would like additional information about these topics, please contact:
- Angela Deneweth at (586) 530-8178 or adeneweth@HallRenderAS.com;
- Delena Howard at (904) 382-7822 or dhoward@HallRenderAS.com;
- Katherine Kuchan at (414) 721-0479 or kkuchan@hallrender.com;
- Ritu Kaur Cooper at (232) 370-9584 or rcooper@hallrender.com; or
- Your primary Hall Render or Hall Render Advisory Services contact.
Hall Render and Hall Render Advisory Services blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
