BILL ANALYSIS Ó
SB 1076
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Date of Hearing: June 28, 2016
ASSEMBLY COMMITTEE ON HEALTH
Jim Wood, Chair
SB
1076 (Hernandez) - As Amended April 18, 2016
SENATE VOTE: 32-5
SUBJECT: General acute care hospitals: observation services.
SUMMARY: Requires a hospital patient receiving observation
services, either in an inpatient or observation unit of a
hospital, as defined, to be notified that they are on
observations status. Specifically, this bill:
1)Defines observation services as 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. Specifies that observation
services may 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, when a patient in an inpatient unit of a hospital or
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in an observation unit, as defined, is receiving observation
services, or following a change in a patient's status from
inpatient to observation, that the patient receive written
notice that he or she is on observation status.
3)Requires the patient to receive the notice in writing, as soon
as practicable. Requires the notice to state 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.
4)Defines "observation unit" 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.
5)Allows a hospital to establish one or more observation units
that must be marked with signage identifying the observation
unit area as an outpatient area. Requires the signage to use
the term "outpatient" in the title of the designated area to
clearly indicate to all patients and family members that the
observation services provided in the center are not inpatient
services.
6)Specifies that identifying an observation unit by a name or
term other than that used in these provisions does not exempt
the hospital from compliance with these requirements.
7)Requires an observation unit to comply with the same licensed
nurse-to-patient ratios as supplemental emergency services, as
specified.
8)Requires hospitals, as part of their quarterly reports to the
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Office of Statewide Health Planning and Development (OSHPD) to
report observation service visits and the number of hours of
observation services provided separately from the number of
outpatient visits they report. 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.
EXISTING LAW:
1)Licenses general acute care hospitals under the California
Department of Public Health (DPH). 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 DPH 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 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.
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4)Requires DPH 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)Requires nurse-to-patient ratios in a hospital providing basic
emergency medical services or comprehensive emergency medical
services in an emergency department to be 1:4 or fewer at all
times that patients are receiving treatment.
6)Establishes 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.
FISCAL EFFECT: According to the Senate Appropriations
Committee:
1)Ongoing costs, less than $50,000 per year, for additional
licensing enforcement activity by DPH and Los Angeles County
(Licensing and Certification Fund). Under this bill, DPH (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.
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2)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.
COMMENTS:
1)PURPOSE OF THIS BILL. 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. The author states that, 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. The
author concludes that, 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)BACKGROUND.
a) Two midnight rule. 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
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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
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
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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.
d) 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:
i) Explain the individual's status as an outpatient and
not as an inpatient and the reasons why;
ii) 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
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furnished by a skilled nursing facility;
iii) Include appropriate additional information;
iv) Be written and formatted using plain language and
made available in appropriate languages; and,
v) 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.
Several states already require observation care notices
including: Connecticut, Maryland, New York, Pennsylvania,
and Virginia.
3)SUPPORT. The California Nurses Association (CNA) is the
sponsor of this bill and states that because observation units
are considered an outpatient service, they are not subject to
many of the laws and regulations designed to ensure patient
safety and adequate staffing standards. CNA continues, many
patients are not aware that they are in observation, leaving
them to believe they are admitted as inpatients, which is
especially concerning for patients who may need to be
discharged to a long-term care facility, as Medicare requires
patients to be admitted as inpatients for three days before
coverage for long-term care will kick in.
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The California School Employees Association (CSEA) supports this
bill noting that for patient safety this bill requires the
staffing in observation units to be the same as staffing
emergency rooms, and CSEA believes that staffing requirements
in observation units are important. The California Labor
Federation (CLF) supports this bill stating the impact on
patients of the misuse of observation units can be
devastating. CLF notes that since observation services are
considered outpatient care, 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.
4)OPPOSITION. The Marin Healthcare District (MHD) writes in
opposition that they believe the 1:4 nurse/patient ratio
required by this bill is much too high for these low acuity
patients, noting that the patients they place on observation
status are not sick enough to be admitted to the hospital.
MHD concludes that staffing levels should be left to the
hospital to determine for these low acuity patients.
5)PREVIOUS LEGISLATION.
a) 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."
b) SB 483 (Beall) of 2015 would have required a general
acute care hospital that provides observation services in
an observation unit, as defined, to apply for approval from
DPH for observation services as a supplemental service, as
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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.
c) SB 1269 (Beall) of 2014 was very similar to SB 483. SB
1269 was held on the Senate Appropriations Committee
Suspense File.
d) SB 1238 (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 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.
REGISTERED SUPPORT / OPPOSITION:
Support
California Nurses Association (sponsor)
California Labor Federation
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California School Employees Association
One individual
Opposition
Marin Healthcare District
Analysis Prepared by:Lara Flynn / HEALTH / (916)
319-2097