BILL ANALYSIS Ó SENATE COMMITTEE ON HEALTH Senator Ed Hernandez, O.D., Chair BILL NO: SB 1076 --------------------------------------------------------------- |AUTHOR: |Hernandez | |---------------+-----------------------------------------------| |VERSION: |February 16, 2016 | --------------------------------------------------------------- --------------------------------------------------------------- |HEARING DATE: |April 13, 2016 | | | --------------------------------------------------------------- --------------------------------------------------------------- |CONSULTANT: |Vince Marchand | --------------------------------------------------------------- SUBJECT : General acute care hospitals: observation services SUMMARY : Establishes new requirements for observation services provided by a hospital, including that observation services provided in an outpatient observation unit comply with the same nurse-to-patient ratios as emergency services, requiring patients to receive written notice immediately upon placement into observation status, and requiring data on observation services to be reported separately from other outpatient services to the Office of Statewide Health Planning and Development. Existing law: 1)Licenses general acute care hospitals under the California Department of Public Health (CDPH). Defines general acute care hospitals as hospitals that provide 24-hour inpatient care, including the following basic services: medical, nursing, surgical, anesthesia, laboratory, radiology, pharmacy, and dietary services. 2)Permits general acute care hospitals, in addition to the basic services all hospitals are required to offer, to be approved by CDPH to offer special services, including, but not limited to, a radiation therapy department, a burn center, an emergency center, a hemodialysis center or unit, psychiatric services, intensive care newborn nursery, cardiac surgery, cardiac catheterization laboratory, and renal transplant. 3)Permits general acute care hospitals to apply to CDPH 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 SB 1076 (Hernandez) Page 2 of ? hours. 4)Requires CDPH to adopt regulations that establish nurse-to-patient ratios by hospital unit for all general acute care hospitals. Defines "hospital unit" as a critical care unit, burn unit, labor and delivery room, post-anesthesia service area, emergency department, operating room, pediatric unit, step-down/intermediate care unit, specialty care unit, telemetry unit, general medical care unit, subacute care unit, and transitional inpatient care unit. 5)Establishes the Office of Statewide Health Planning and Development (OSHPD), and designates OSHPD as the single state agency to collect specified health facility or clinic data for use by all state agencies. Requires hospitals to make specified reports to OSHPD, including quarterly summary financial and utilization data that includes the number of discharges, the number of inpatient days, the number of outpatient visits, total operating expenses, and inpatient and outpatient gross revenues by payer. This bill: 1)Defines "observation services," for purposes of this bill, as outpatient services provided by a general acute care hospital to those patients who have unstable or uncertain conditions potentially serious enough to warrant close observation, but not so serious as to warrant inpatient admission to the hospital. Permits observation services to include the use of a bed, monitoring by nursing and other staff, and any other services that are reasonable and necessary to safely evaluate a patient's condition or determine the need for a possible inpatient admission to the hospital. 2)Requires observation services provided by a general acute care hospital in an outpatient observation unit, including the services provided in a freestanding physical plant, to comply with the same staffing standards, including licensed nurse-to-patient ratios, as supplemental emergency services, notwithstanding provisions of law that prohibit the state from enforcing higher standards for outpatient services located in a freestanding physical plant of a hospital than is required for licensed clinics. 3)Requires a patient receiving observation services to receive written notice immediately upon admission for observation SB 1076 (Hernandez) Page 3 of ? services or placement into observation status, or immediately following a change from inpatient status to observation status, that his or her care is being provided on an outpatient basis, and that this may affect reimbursement by Medicare, Medi-Cal, or private payers of health care services, or cost-sharing arrangements through his or her health care coverage. 4)Requires observation units not provided in inpatient beds or attached to emergency services to be marked with signage identifying the area as an outpatient area. Requires this signage to use the term "outpatient" in the title of the designated area to indicate clearly to all patients and family members that the observation services provided in the center are not inpatient services. 5)Requires observation services to be deemed outpatient or ambulatory services that are revenue-producing cost centers associated with hospital-based or satellite services locations that emphasize outpatient care. Specifies that identifying an observation unit by another name or term does not exempt the general acute care hospital from compliance with the requirements of this provision. 6)Revises OSHPD reporting requirements to require hospitals to exclude observation service visits from the number of outpatient visits that they report to OSHPD, and instead separately report the number of observation service visits and number of hours of observation services provided. Requires hospitals to also report total observation service gross revenues by payer, including Medicare, Medi-Cal, county indigent programs, other third parties, and other payers. FISCAL EFFECT : This bill has not been analyzed by a fiscal committee. COMMENTS : 1)Author's statement. According to the author, this bill is intended to address problems associated with the growing trend of patients being treated under "observation status," as an outpatient, for extended periods of time. Outpatient services are not subject to many of the laws and regulations designed to ensure patient safety and adequate staffing standards in acute care hospitals. Often, patients are not even aware they have not been admitted to the hospital, even when they have SB 1076 (Hernandez) Page 4 of ? been moved outside of the emergency room into a hospital bed and kept overnight. Additionally, hospitals are not required to report data to the state on observation service utilization, which leaves the public with a lack of information on how often and for what reasons outpatient observation services are used. 2)Medicare's two-midnight rule. California law has long drawn a distinction between outpatient medical care, which is care provided for less than 24 hours, and inpatient medical care, which is when a patient is formally admitted and will be spending at least one night in the hospital. However, third-party payers are increasingly unwilling to authorize inpatient admissions for patients who are not expected to have an extended stay at the hospital, and asking instead that these patients be kept in the hospital under "observation," as an outpatient. This has been driven, in part, by a Medicare policy known as the "two-midnight rule," which 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 very 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 two-midnight rule. In response to numerous complaints, in early 2014, announced that it would delay enforcement of the rule through September 2014, and this delay was subsequently extended several times. Beginning in January of this year, enforcement by recovery audits could proceed, but only for those hospitals that have been referred by a Quality Improvement Organization as exhibiting persistent noncompliance with the two-midnight rule. The two-midnight rule has had a number of repercussions. One issue that has been widely reported is that in order to qualify for skilled nursing care, Medicare beneficiaries have to spend three days in the hospital as an inpatient. With the Center for Medicare and Medicaid Services (CMS) pushing SB 1076 (Hernandez) Page 5 of ? 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, 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 shoulder much higher out-of-pocket costs. Finally, many hospitals and other providers are reporting that observation care is increasing across all types of payers, not just for Medicare patients. Medicare is frequently a trend-setter, and may be setting a trend of increasing use of outpatient "observation care," even for patients who spend 48 hours or more in a hospital. 3)Federal NOTICE Act. Federal legislation passed last year, the Notice of Observation, Treatment, and Implication for Care Eligibility (NOTICE) Act, requires Medicare patients to be notified when they are being held for observation rather than admitted. Under the NOTICE Act, the hospital is required to give each individual Medicare patient who receives observation services as an outpatient for more than 24 hours an adequate oral and written notification within 36 hours after the beginning of the observation service. Requires this oral and written notification to: a) Explain the individual's status as an outpatient and not as an inpatient and the reasons why; b) Explain the implications of that status on services furnished (including those furnished as an inpatient), in particular the implications for cost-sharing requirements and subsequent coverage eligibility for services furnished by a skilled nursing facility; c) Include appropriate additional information; d) Be written and formatted using plain language and made available in appropriate languages; and, e) Be signed by the individual or a person acting on the individual's behalf to acknowledge receipt of the notification. The NOTICE Act is scheduled to take effect in August of this year, and CMS is currently preparing rulemaking to implement this law. 4)Prior legislation. SJR 8 (Hernandez, Resolution Chapter 135, SB 1076 (Hernandez) Page 6 of ? Statutes of 2015), urged 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." SB 483 (Beall, 2015), would have required a general acute care hospital that provides observation services in an observation unit, as defined, to apply for approval from the CDPH for observation services as a supplemental service, as specified; limited observation services in an observation unit to 24 hours; required observation services in an observation unit to have the same staffing requirements as emergency services; and, required 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. SB 1269 (Beall, 2014) was very similar to SB 483. SB 1269 was held on the Senate Appropriations Committee Suspense File. SB 1238 (Hernandez, 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 specified 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. 5)Support. This bill is sponsored by the California Nurses Association (CNA), which states that more and more, hospitals are placing patients who cannot be safely discharged to their homes in "observation units" as an alternative to hospital admission. CNA states that many patients are not aware that they are in observation, leaving them to believe they are admitted as inpatients. According to CNA, outpatient units are not subject to many of the laws and regulations designed to ensure patient safety and adequate staffing standards. Additionally, CNA states that hospitals are not required to report data to the state on observation service utilization, which leaves the public with a dearth of information on how often and for what reasons outpatient observation services are used. CNA states that this bill will address these concerns by doing the following: requiring hospitals to require SB 1076 (Hernandez) Page 7 of ? observation units to meet the nurse-to-patient staffing ratios as emergency rooms, or the applicable ratio wherever the observation bed is placed; requiring hospitals to provide notice to patients that observation services are "outpatient" and that third-party reimbursement may be impacted; and, requiring hospitals to report observation services to OSHPD. The California Labor Federation (CLF) states in support that hospitals have increased their use of observation services as a strategy to improve care, contain costs, control readmissions, and reduce emergency room overcrowding. However, CLF states that state and federal laws have not kept up with the dramatic increase in the use of observation units, and that the impact on patients of the misuse of observation units can be devastating. Noting that observation services are considered outpatient care, CLF states that patients can be billed for every individual service, test and drug provided, rather than just paying a single co-pay for inpatient care that includes all services, and that patients might not even know they are in observation. 6)Opposition. This bill is opposed by the California Chapter of the American College of Emergency Physicians (CalACEP), which states that this bill requires that a patient receive notice that they are receiving observation services immediately upon receiving those services, which is inconsistent with the federal NOTICE Act and therefore sets up a conflict. CalACEP states that requiring notification at the moment a patient's status is changed is onerous and difficult to implement in the emergency department, and that this measure will place additional stress on California's overcrowded and burdened emergency departments. 7)Oppose unless amended. The California Hospital Association (CHA) is opposed to this bill unless amended, stating that the decision for inpatient hospital admission is a complex medical decision based on the physician's judgment and the patient's medical care needs. CHA points out that the federal NOTICE Act will take effect in July, which will require hospitals to provide written notification and a related oral explanation to beneficiaries receiving outpatient observation services, and strongly believes any notification requirement should be consistent with forthcoming standards for the NOTICE Act. CHA states that this bill should be amended to specify that observation services begin when it is ordered by a provider SB 1076 (Hernandez) Page 8 of ? according to hospital policy, modify the required notification to the patient that they are on "observation status" and that it could impact their coverage reimbursement, and make other clarifying changes. Tenet Health also opposes this bill unless amended, stating that it would add additional and potentially conflicting rules that Medicare is currently contemplating regarding the use of observation, which is required by Medicare for many short-stay patients. Tenet states that it has been lobbying the federal government to change the current "two-midnight rule" that is the root of the spike in observation, and that it believes the federal rule often supplants clinical decisions relating to the appropriateness of hospital admissions. Tenet states that it does not believe that adding additional, duplicative mandates on hospitals here does anything to solve the observation dilemma. Tenet states that any state notice follow CMS requirements and is implemented subsequent to the implementation of the Medicare notice, so hospitals do not have to provide two separate notices. Tenet also considers observation unit requirements in this bill to be unnecessary in light of already-existing requirements permitting hospitals to request program flex for an observation unit that is located in a separate physical location from the emergency room or other units of the hospital. Finally, Tenet states that it supports inclusion, as part of the "Other Utilization Statistics," of the already collected observation hours that are reported through financial reporting forms, rather than the new reporting requirements in this bill. SUPPORT AND OPPOSITION : Support: California Nurses Association (sponsor) California Labor Federation California Psychiatric Association California School Employees Association Oppose: California Chapter of the American College of Emergency Physicians California Hospital Association (unless amended) Tenet Health (unless amended) -- END -- SB 1076 (Hernandez) Page 9 of ?