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, is headed to the Senate floor.

The bill, SB 1076, introduced by Sen. Ed Hernandez of West Covina and sponsored by the California Nurses Association/National Nurses United, won approval in the Senate Appropriations Committee Monday. Next up, a vote by the full Senate in the coming weeks.

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.

“Use of ‘observation’ status, under which a patient can be held for hours or days with less public oversight and fewer protections, puts patients at health and financial risk, nurses say. SB 1076 would extend protections for “observation” patients that are provided to other patients in the hospital setting.

"SB 1076 builds on two of my priorities as Chair of Senate Health Committee: protecting patient safety, and improving transparency in health care," stated Senator Hernandez after the vote.

"This bill ensures patients in observation status get the same safe nurse staffing as if they were an inpatient or in the emergency department, and it improves transparency by making sure patients are informed when they are in observation status," Hernandez said.

Hospitals use “observation” classification partly 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.

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.