BILL ANALYSIS Ó
SJR 8
Page 1
Date of Hearing: July 14, 2015
ASSEMBLY COMMITTEE ON HEALTH
Rob Bonta, Chair
SJR
8 (Ed Hernandez) - As Introduced May 7, 2015
SENATE VOTE: 40-0
SUBJECT: Medicare: observation status.
SUMMARY: Urges Congress and the President of the United States
to reform short stay hospital admissions criteria to more
accurately reflect the clinical needs of a patient as determined
by a physician and to discontinue the so-called "two-midnight
rule."
EXISTING LAW:
1)Establishes the Department of Public Health (DPH), which
licenses and regulates general acute care hospitals, acute
psychiatric hospitals, and special hospitals.
2)Defines a general acute care hospital as a hospital that
provides 24-hour inpatient care, including the following eight
basic services: medical; nursing; surgical; anesthesia;
laboratory; radiology; pharmacy; and, dietary services.
SJR 8
Page 2
3)Permits general acute care hospitals to apply to DPH for
approval of supplemental outpatient clinic services. Limits
the outpatient clinic services to providing nonemergency
primary health care services in a clinical environment to
patients who remain in the outpatient clinic for less than 24
hours.
FISCAL EFFECT: None
COMMENTS:
1)PURPOSE OF THIS RESOLUTION. According to the author, the
federal Medicare short stay hospital admissions policy states
that inpatient admission to a hospital should not occur unless
a physician expects a patient's condition to span at least two
nights. Patients who are not formally admitted nor discharged
are often put in "observation status" which is an outpatient
designation. Many Medicare patients are not aware they are in
observation status, nor that they may be financially
responsible for part of the cost of care. The author states,
the two-midnight policy dictates hospital admissions on the
basis of an arbitrary length of time instead of the clinical
judgment of a physician.
The author also notes current Medicare coverage policy
requires a patient to have been classified as a hospital
inpatient for at least three consecutive days to receive
skilled nursing care coverage once discharged from the
hospital; therefore, patients under observation status do not
accrue time toward the three consecutive days. Often times,
beneficiaries are admitted into a skilled nursing facility
SJR 8
Page 3
believing that the three-day requirement has been met, unaware
that they were placed for some time in observation.
Unfortunately, beneficiaries in this scenario may become
financially responsible for the care received at the skilled
nursing facility, which can be very costly.
The author concludes, this resolution calls upon the federal
government to reform the short stay admissions criteria to
more accurately reflect the clinical needs of a patient as
determined by a physician and to discontinue the two-midnight
policy that is currently in place.
2)BACKGROUND.
a) Two midnights. On August 2, 2013, the Centers for
Medicare and Medicaid Services (CMS) issued a final rule
updating its Medicare payment policies. This rule,
commonly known as the two-midnight rule, states that
inpatient admission, and therefore payment under Medicare
Part A, is generally only appropriate when the physician
expects the patient to require a stay that crosses at least
two midnights and admits the patient based on that
expectation. If the physician does not expect the patient
to stay in the hospital for at least two midnights, the
expectation is that the patient will be treated as an
outpatient, under "observation," and Medicare will
reimburse providers under Part B.
This has been controversial within the hospital community.
The rule had been enforced by contractor audits that
reviewed records of patients, and revoked payment for
inpatient stays that did not meet the CMS two-midnight
rule. In response to numerous complaints, in early 2014,
CMS announced that it would delay enforcement of the rule
SJR 8
Page 4
through September 2014, and this delay was subsequently
extended several times. Most recently, as part of the
Medicare Access and Children's Health Insurance Program
Reauthorization Act of 2015 that President Obama signed
into law on April 16, 2015, the delay on enforcement was
extended through September 30, 2015.
b) Inpatient vs. outpatient. Medicare payment rates for
inpatient and outpatient hospital stays differ. CMS pays
acute care hospitals for inpatient stays under the Hospital
Inpatient Prospective Payment System in the Medicare Part A
program. CMS sets payment rates prospectively for
inpatient stays based on the patient's diagnoses,
procedures, and severity of illness. The Hospital
Outpatient Prospective Payment System is paid under the
Medicare Part B program and is a hybrid of a prospective
payment system and a fee schedule, with some payments
representing costs packaged into a primary service and
other payments representing the cost of a particular item,
service, or procedure.
c) Repercussions. In order to qualify for skilled nursing
care, Medicare beneficiaries have to spend three days in
the hospital as an inpatient. With CMS encouraging
hospitals to treat shorter-stay patients as outpatients
under observation, many Medicare patients are finding that
one or more of their days spent in the hospital was as an
outpatient, and despite spending more than three days in
the hospital, they are not qualified to receive skilled
nursing care upon discharge. Additionally, if services
received in a hospital are billed under Part B as an
outpatient, the Medicare beneficiary is likely to have to
cover much higher out-of-pocket costs.
3)SUPPORT. Tenet Healthcare, the sponsor of this resolution,
SJR 8
Page 5
states that in recent years, seniors and other patients are
increasingly placed in observations status driven by the
evolving federal Medicare two-midnight policy. Tenet notes,
while patients placed in observation status do not receive any
less services or necessary care they may be subject to high
copays under their insurance coverage for outpatient services.
Tenet contends the two-midnight policy, in stating that an
inpatient admission should not occur unless the physician
expects the patient's condition to span at least two nights,
sets an arbitrary precondition on a clinician's judgment.
Tenet concludes a physician's clinical judgment should be the
sole determination to admit a patient into a hospital for
care.
Leading Age, California states the increasing prevalence of
hospital observation stays has become extremely problematic
for patients, their families, and post-acute care providers
since observation is an outpatient designation, and therefore,
does not count towards the CMS three night stay requirement.
Leading age notes that one possible solution to this issue
would be to allow any night spent in the hospital, whether
inpatient or outpatient, to count.
4)RELATED LEGISLATION. SB 483 (Beall) requires a general acute
care hospital that provides observation services in an
observation unit to apply for approval from DPH for
observation services as a supplemental service; limits
observation services in an observation unit to 24 hours;
requires observation services in an observation unit to have
the same staffing requirements as emergency services; and,
requires hospitals to report observation service data to the
Office of Statewide Health Planning and Development. SB 483
was held on the Senate Appropriations Committee suspense file.
5)PREVIOUS LEGISLATION.
SJR 8
Page 6
a) SB 1269 (Beall) of 2014 was very similar to SB 483. SB
1269 was held on the Senate Appropriations Committee
Suspense File.
b) SB 1238 (Ed Hernandez) of 2014 would have required an
outpatient to either be discharged or admitted to inpatient
status after no more than 24 hours, but permitted an
outpatient stay of longer than 24 hours when discharge was
imminent under certain circumstances, including when
admission to inpatient status would directly conflict with
federal Medicare reimbursement requirements. SB 1238 was
held on the Senate Appropriations Committee Suspense File.
c) SB 631 (Beall) of 2013, also contained provisions
similar to SB 483, was referred to Senate Health Committee,
but was never set for a hearing.
REGISTERED SUPPORT / OPPOSITION:
Support
Tenet Healthcare (sponsor)
LeadingAge California
Opposition
None on file.
SJR 8
Page 7
Analysis Prepared by:Lara Flynn / HEALTH / (916)
319-2097