BILL ANALYSIS Ó SB 1076 Page 1 Date of Hearing: August 3, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair SB 1076 (Hernandez) - As Amended August 1, 2016 ----------------------------------------------------------------- |Policy |Health |Vote:|16 - 2 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- 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. SB 1076 Page 2 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 SB 1076 Page 3 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 SB 1076 Page 4 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. SB 1076 Page 5 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