BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 1269 (Beall) - General acute care hospitals.
Amended: May 5, 2014 Policy Vote: Health 6-1
Urgency: No Mandate: Yes
Hearing Date: May 19, 2014 Consultant: Brendan McCarthy
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1269 would prohibit hospitals from providing
"observation services" for more than 24 hours. The bill would
impose specified regulatory requirements on hospitals that
provide observation services in an observation unit.
Fiscal Impact:
One-time costs of $210,000 to develop regulations by the
Department of Public Health (Licensing and Certification
Program Fund).
Ongoing costs of $1 million in 2015-16 and $800,000 per
year thereafter for licensing of hospitals and enforcement
(Licensing and Certification Program Fund). Given the
widespread practice of providing observation services in
hospitals, the Department anticipates that most general
acute care hospitals would apply to the Department to be
authorized to provide observation services in an observation
unit. Therefore, the Department anticipates significant
additional licensing activity under the bill.
Unknown increase in Medi-Cal spending for hospital services
(General Fund and federal funds). Under current practice,
the Medi-Cal program does not recognize observation services
as a distinct category. Thus, when hospitals place a patient
on observation status, it is not clear how they bill
Medi-Cal for services. Provided they receive a treatment
authorization from Medi-Cal, hospitals could bill the
program for an inpatient hospitalization when a patient is
on observation status. Alternatively, hospitals may only be
billing Medi-Cal for outpatient services, which are less
costly. Under the bill, hospitals are likely to admit more
patients to inpatient care. In the cases of hospitals that
have been billing Medi-Cal only for outpatient services,
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this is likely to increase Medi-Cal costs by shifting those
services to more costly inpatient services. The extent of
this impact is unknown.
Background: Under current law, general acute care hospitals are
licensed by the Department of Public Health. Licensed general
acute care hospitals are authorized to provide 24-hour inpatient
care with a variety of basic medical services. In addition,
hospitals can apply to offer special services such as an
emergency center, psychiatric services, cardiac surgery, and
others. Hospitals can also apply to provide outpatient services.
Historically, when a patient was treated at an emergency
department or underwent a surgical procedure, a physician would
make a determination whether the patient could go home or needed
to be admitted to the hospital as an inpatient for further
observation and/or treatment. Existing regulations define an
outpatient as someone who has not been formally admitted to a
hospital and who does not remain over 24 hours.
In recent years, hospitals have begun treating patients under
"observation status" or "observation services" in which the
patient is not actually admitted to the hospital as an
inpatient, but is nevertheless given a bed in the hospital and
kept under clinical observation. In part, this trend is being
driven by Medicare and other third-party payers who are refusing
to pay for inpatient admissions under certain circumstances.
This leads to hospitals keeping patients on observation status,
often for more than 24 hours. Under federal Medicare rules, a
beneficiary is only eligible for Medicare-funded skilled nursing
facility care after three days as an inpatient in a hospital. If
a patient was in a hospital for several days, but some of those
days were on observation status, the patient may unknowingly be
ineligible for Medicare payment for the subsequent skilled
nursing care.
Proposed Law: SB 1269 would prohibit hospitals from providing
"observation services" for more than 24 hours. The bill would
impose specified regulatory requirements on hospitals that
provide observational services in an observation unit.
Specific provisions of the bill would:
Prohibit hospitals from providing observation services for
more than 24 hours;
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Require a hospital that provides observation services in an
observation unit to be licensed by the Department of Public
Health to provide such services as a supplemental service or
a special service;
Require the Department to adopt standards and regulations
for the provision of observation services in an observation
unit;
Specify the conditions under which a health care worker can
order observation services for a patient;
Require observation services provided in an observation
unit (including one in a free standing building) to meet the
same staffing standards as are required for supplemental
emergency services;
Require notification to patients about their observation
services;
Require observation units to be specifically market by
signage;
Require hospitals that provide observation services to
include data on usage, revenues, and other information as
part of an existing reporting requirement.
Related Legislation:
SB 1238 (Hernandez) would limit the ability of hospitals to
use "observation services" by requiring a hospital patient
to either be discharged or admitted as an inpatient after no
more than 24 hours, with limited exceptions. That bill will
be heard in this committee.
SB 631 (Beall, 2013) was substantially similar to this
bill. That bill was held in the Senate Health Committee.
Staff Comments: The only costs that may be incurred by a local
agency under this bill relate to crimes and infractions. Under
the California Constitution, such costs are not reimbursable by
the state.