BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1076  


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          Date of Hearing:  August 3, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          SB 1076  
          (Hernandez) - As Amended August 1, 2016


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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   
          No


          SUMMARY:


          This bill establishes a definition, disclosure, staffing, and  
          reporting with respect to "observation services" in a hospital.   
          Specifically, this bill:


          1)Defines observation services as outpatient services to  
            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.  










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          2)Requires disclosure that a patient is receiving observation,  
            as opposed to inpatient, services. 


          3)Requires observation units, as defined, to meet the same  
            licensed nurse-to-patient ratios as supplemental emergency  
            services.


          4)Adds data on observation services to information publicly  
            reported by the Office of Statewide Health Planning and  
            Development (OSHPD). 


          FISCAL EFFECT:


          1)Ongoing costs, less than $50,000 per year, for additional  
            licensing enforcement activity by the Department of Public  
            Health and Los Angeles County (Licensing and Certification  
            Fund).  Under the bill, the Department (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.



          2)Minor and absorbable costs to OSHPD to add data on observation  
            services to existing reports (California Health Data and  
            Planning Fund). 
          


          COMMENTS:


          1)Purpose. According to the author, outpatient services are not  
            subject to many of the laws and regulations designed to ensure  
            patient safety and adequate staffing standards in acute care  








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            hospitals.  In addition, individuals are often unaware they  
            are being placed on observation status and believe they are  
            admitted as hospital inpatients, with implications for patient  
            cost-sharing and availability of services. This bill seeks to  
            establish standards related to observation services. 


          2)Background. Hospitals can provide services on either an  
            inpatient or an outpatient basis. A physician order is  
            necessary to admit a patient to the hospital as an inpatient.   
            According to the Department of Health and Human Services,  
            observation services are short-term treatments and assessments  
            provided to outpatients to determine whether beneficiaries  
            require further treatment as inpatients, or can be discharged.  
            In 2013, Medicare adopted a payment rule termed the  
            "two-midnight rule," in order to clearly define what services  
            qualified for inpatient payment rates, which are generally  
            higher.  The rule was intended to clarify that inpatient  
            services are appropriate when the stay is expected to last two  
            midnights. This rule puts hospitals at risk of claims denial  
            from Medicare for inpatient services that do not last span at  
            least two midnights.  The rule has led to physician, hospital,  
            and patient concern; has been delayed and revised; and has  
            impacted hospital policies and practices.  





            In particular, the two-midnight rule has led to greater use of  
            observation status instead of admitting patients who may be  
            expected to have a short hospital stay.   However, according  
            to the journal Health Affairs, patients may or may not  
            understand they are being held in observation status instead  
            of admitted as inpatients.  This is a concern because status  
            as an inpatient or outpatient affects payment, patient  
            cost-sharing, and eligibility for skilled nursing facility  
            (SNF) services. For instance, one of the requirements  
            necessary for Medicare to cover a stay in a skilled SNF is  








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            that the beneficiary must have had an inpatient hospital stay  
            of at least three days prior to admission to the SNF.   
            Patients held in observation do not qualify for SNF services  
            through Medicare regardless of length of stay because they are  
            technically not inpatients, even though they may have stayed  
            in a hospital bed for three days.  A federal law requiring  
            Medicare patients to be notified when they are being held for  
            observation instead of admitted as inpatients goes into effect  
            this year. 





            As the author also notes, observation status also does not  
            require the same nurse-to-patient ratio standards as inpatient  
            care.  





          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.  California Labor  
            Federation and the California School Employees Association  
            also support.


          4)Opposition. Tenet Healthcare and Marin Healthcare District  
            oppose this bill.  Tenet cites conflict with federal law, and  
            Marin contends the staffing ratio is unnecessarily high. 


          5)Prior Legislation. 










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               a)     SJR 8 (Hernandez), Resolution Chapter 135, Statutes  
                 of 2015, urged the federal government to reform  
                 short-stay hospital admissions criteria and to  
                 discontinue the two-midnight rule.


               b)     SB 1238 (Hernandez) of 2014, SB 1269 (Beall) of  
                 2014, and SB 483 (Beall) of 2015 were all attempts at  
                 more stringent regulation of observation services, and  
                 all were held on the Senate Appropriations suspense file.


          Analysis Prepared by:Lisa Murawski / APPR. / (916)  
          319-2081