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Nurses, Hospital Officials Clash Over Observation Units, Charity Care

On the eve of a nurses’ strike at Sutter Health and three Los Angeles area hospitals, California nurses clashed with hospital officials over two bills at a hearing of the Senate health committee.

SB 483, by Sen. Jim Beall (D-San Jose), would provide more state oversight of hospital observation units and limit patient observation status at hospitals to 24 hours. The bill would also apply state nurse-to-patient ratios to observation units.

SB 346, by Sen. Bob Wieckowski (D-Fremont), addresses hospital charity care and could significantly alter the community benefit tax status of not-for-profit hospitals.

The number of observation units in hospitals has doubled over the past decade in response to reimbursement changes. Observation often serves as an alternative to inpatient admission and it is reimbursed as outpatient care. Patients who cannot be discharged to their homes are sometimes placed in observation units.

Medicare patients face differences in cost-sharing and eligibility for other services if they are placed under observation but are never admitted to the hospital. For instance, patients must have an inpatient stay of at least three days in order for Medicare to cover a subsequent stay in a skilled nursing facility.

The California Nurses Association contends that observation units, because they are considered outpatient care, allow hospitals to bypass rules on data reporting and staffing ratios. Some 8% of patients in 2011 were in observation for more than 48 hours, up from 3% of patients in 2006, according to Health Affairs.

“This is one of the least reported problems in U.S. hospitals,” Kathy Donahue, board member of the CNA and nurse at Kaiser Oakland testified at the hearing.

The California Hospital Association opposes SB 483, contending that observation is a valuable tool for physicians and that the bill is in direct conflict with federal reimbursement rules on observation units.

“The issue of observation is very confusing and that is why we are opposed,” said Connie Delgato, chief legislative advocate of the CHA.

In August 2013, CMS issued a new rule around reimbursement for observation patients. Under the CMS’ “two-midnight rule,” most hospital stays that a physician expects to last fewer than two midnights are reimbursed as outpatient care. Previously, the federal government gave hospitals and physicians more discretion between outpatient and inpatient care decisions.

The federal government began conducting post-payment audits on claims surrounding the two-midnight rule on April 1.

Beall said his bill would provide more oversight to patients placed under observation. “We don’t want to have a disparate healthcare system where people are parked in observation units,” he said.

SB 483 passed on a 6-2 vote and now goes to the appropriations committee.

SB 346 would replace existing hospital community benefit law with new rules requiring private not-for-profit hospitals to complete a community needs assessment by 2018. It also requires 90% of private community benefit money to be allocated to charity care and community projects for underserved populations.

California hospitals provide $5 billion annually in community benefit, according to the CHA, which opposes the bill.

SB 346 needed six votes to get out of committee, but fell short with a 4-2 vote. CNA officials said they will be reviewing options on how to proceed with the bill.

The CNA is staging a one-day walkout at Sutter Health hospitals on Thursday, and two days of actions at three hospitals in Southern California: Kaiser Permanente Los Angeles Medical Center, Providence St. John Health Center in Santa Monica and Providence Little Company of Mary Medical Center in Torrance.

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