This chapter discusses some of the history and issues of observation as related to the Centers for Medicare and Medicaid (CMS). The CMS definition of observation is given. When a physician orders that a patient be placed under observation, the patient’s status is that of an outpatient. Recovery Audit Contractors (RACs) hired by CMS may retroactively review medical records and deny admissions. Over the years, the number of observation cases and hours in observation has increased. The “outpatient” status prevents Medicare beneficiaries from accessing their Part A benefit for a stay at a skilled facility (SNF) covered by Medicare, and self-administered medication costs during the observation stay are not covered. Medicare beneficiaries took the battle to the courtroom. A class action lawsuit was filed in 2011 by seven Medicare patients and their families, later joined by seven more plaintiffs, against the Department of Health and Human Services (HHS). However, a federal judge ruled against the lawsuit. In 2014, the US Senate held a committee hearing on the impact of Medicare observation. Congress passed the Notice Act which became law in 2015, which lead to CMS developing the Medicare Outpatient Observation Notice (MOON).