Registered nurses are heralding the California Senate’s passage of SB 1076, by a vote of 32-5, a bill that would significantly expand public oversight and protections for one of the least reported problems in U.S. hospitals – the placement of patients in “observation” status.

The Senate vote comes just one day after hundreds of registered nurses converged on Sacramento from throughout the state for a day of legislative action in honor of National Nurses Week. The nurses are members of the California Nurses Association/National Nurses United, which has 90,000 members in California and 186,000 in the U.S.

Sen. Ed Hernandez with nurses just before the march to the Capitol and a day of advocacy for patient care protections.

The CNA sponsored bill SB 1076 was authored by Sen. Ed Hernandez of West Covina to crack down on hospitals that warehouse patients in “observation” status. “Use of ‘observation’ status is an escalating abuse that puts patients at health and financial risk, nurses say. The bill would extend protections for “observation” patients that are provided to other patients in the hospital setting.

"SB 1076 makes certain hospitals provide quality care while ensuring staffing levels that keep patients safe, irrespective of how a patient is classified," said Senator Hernandez.

CNA contends that hospitals increasingly use “observation” status – which can mean holding a patient in a hospital bed or even on a gurney in a hallway for long periods of time – specifically to avoid admitting patients in need of more specialized hospital care.

In part, the goal is to avoid federal penalties for patients who are frequently re-admitted to hospital care after discharge; the same penalties do not apply for a patient re-admitted after discharge from an observation unit. Observation status is treated as outpatient, not inpatient care, and is billed by hospitals on an hourly basis rather than on an inpatient daily rate – an economic incentive for hospitals to warehouse patients in observation status to increase their profits.

A further problem is that patients held under “observation” for the entire duration of their hospital stay who are then discharged to a nursing home or other long term care facility do not qualify for the same Medicare reimbursement, and can face mammoth out-of-pocket costs.

Medicare requires patients to be admitted as inpatients for three days before coverage for long-term care will kick in.  However, time spent in observation does not count, as observation services are outpatient services.

Making the problem worse, patients held in “observation” in a hospital are frequently not told of their hospital status.

“As a perverse response to federal incentives, we are seeing a dramatic upward trend in the use of observation – more patients, sicker patients, for longer periods of time.  And, in many places, the creation of specialized observation units where patients look like they are hospitalized, feel like they are hospitalized, receive many of the same treatments as hospitalized patients but – because they are not officially admitted – are under a lower level of regulation and, too often, at a level of staffing not really appropriate to their condition,” said CNA Board member David Welch, a Chico RN, in testimony to the Senate Health Committee earlier this year .

SB 1076:

• Clarifies that observation units must meet the same staffing standards as emergency rooms.
• Builds on the federal NOTICE Act by requiring hospitals to provide notice to patients that observation services are “outpatient” services and third-party reimbursement may be impacted.
• Requires, if a hospital provides observation services in a dedicated unit that is neither the emergency room nor part of the normal inpatient beds, that this unit be marked with signage identifying the area as an outpatient area.
• Requires hospitals to report observation services to the Office of Statewide Health Planning and Development.
• Prohibits hospitals from evading the requirements by disguising “observation” units with a different name.