BILL ANALYSIS                                                                                                                                                                                                    Ó






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                                   THIRD READING 


          Bill No:  SB 1076
          Author:   Hernandez (D) 
          Amended:  4/18/16  
          Vote:     21 

           SENATE HEALTH COMMITTEE:  8-1, 4/13/16
           AYES:  Hernandez, Hall, Mitchell, Monning, Nielsen, Pan, Roth,  
            Wolk
           NOES:  Nguyen

           SENATE APPROPRIATIONS COMMITTEE:  6-1, 5/2/16
           AYES:  Lara, Beall, Hill, McGuire, Mendoza, Nielsen
           NOES:  Bates

           SUBJECT:   General acute care hospitals:  observation services


          SOURCE:    California Nurses Association

          DIGEST:  This bill 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 when they are  
          receiving observation services in an inpatient unit of the  
          hospital, and requiring data on observation services to be  
          reported separately from other outpatient services to the Office  
          of Statewide Health Planning and Development.

          ANALYSIS:  

          Existing law:









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          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  
            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  







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            outpatient services provided by a general acute care hospital,  
            and that have been ordered by a provider, 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)Defines "observation unit," for purposes of this bill, as an  
            area in which observation services are provided in a setting  
            outside of any inpatient unit and that is not part of an  
            emergency department of a general acute care hospital.

          3)Permits a hospital to establish an observation unit, and  
            requires these units to be marked with signage identifying the  
            unit as an outpatient area to indicate clearly to all patients  
            and family members that the observation services are not  
            inpatient services. Requires observation services provided in  
            an outpatient observation unit to comply with the same  
            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.

          4)Specifies that identifying an observation unit by another name  
            or term does not exempt the hospital from compliance with the  
            staffing and signage requirements in 3) above.

          5)Requires a patient, when he or she is receiving observation  
            services in an inpatient or observation unit of a hospital, to  
            receive written notice as soon as practicable that he or she  
            is on observation status, and that while on observation  
            status, the patient's care is being provided on an outpatient  
            basis, which may affect his or her health care coverage  
            reimbursement.
           
          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  







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            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.

          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  
            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.  







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            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, the Center for Medicare  
            and Medicaid Services (CMS) 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  
            CMS pushing 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 of Observation, Treatment, and Implication for  
            Care Eligibility (NOTICE) Act. Federal legislation passed last  
            year, the 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  







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                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.
          
          Prior Legislation
          
          SJR 8 (Hernandez, Resolution Chapter 135, 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 OSHPD. SB 483  
          was held on the Senate Appropriations Committee Suspense File.

          SB 1269 (Beall, 2014) was very similar to SB 483. SB 1269 was  







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          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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes

          According to the Senate Appropriations Committee:

           Ongoing costs, less than $50,000 per year, for additional  
            licensing enforcement activity by the CDPH and Los Angeles  
            County (Licensing and Certification Fund). Under this bill,  
            the CDPH (and Los Angeles County, under contract with the  
            state) would experience a minor increase in workload when  
            performing licensing surveys of hospitals that provide  
            observation services.

           Ongoing costs of $100,000 per year (and an additional $10,000  
            in the first year) for OSHPD to amend existing regulations,  
            update data reporting tools, and audit data reported by  
            hospitals under this bill (California Health Data and Planning  
            Fund). This bill requires hospitals that provide observation  
            services to include specific data on observation services as  
            part of the existing requirement for hospitals to report  
            certain data to the state.


          SUPPORT:   (Verified5/4/16)


          California Nurses Association (source)
          California Alliance for Retired Americans
          California Labor Federation
          California Psychiatric Association
          California School Employees Association







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          OPPOSITION:   (Verified5/4/16)




          Tenet Health




          ARGUMENTS IN 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 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  







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          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.


          ARGUMENTS IN OPPOSITION:     Tenet Health 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.




          Prepared by:Vince Marchand / HEALTH /
          5/4/16 15:04:17


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