PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Amendment of section 405.19 of Title 10 NYCRR.

Observation Unit Operating Standards.

To provide operating standards for observation units.

in the September 28, 2011 issue of the Register, I.D. No. HLT-39-11-00008-P.

No changes.

Katherine Ceroalo, DOH, Bureau of House Counsel, Regulatory Affairs Unit, Room 2438, ESP, Tower Building, Albany, NY 12237, (518) 473-7488, email: [email protected]

This regulation creates operating standards for observation units. Observation services delivered in observation units that comply with this regulation will be eligible for Medicaid reimbursement.

The public comment period for this proposal ended on November 12, 2011, and the Department received 11 comments. They came from the Healthcare Association of New York State, Unity Health System, Suburban Hospital Alliance of New York State, Iroquois Health Care Alliance, Lutheran Medical Center, Mercy Medical Center, New York American College of Emergency Physicians, Carthage Area Hospital, Woodhull Medical and Mental Health Center, University of Rochester Medical Center and NYU Langone Medical Center.

The proposed regulation received strong support from the New York American College of Emergency Physicians, University of Rochester Medical Center and an emergency physician at Mercy Medical Center who is charged with overseeing patient flow throughout that hospital. They all pointed to research that supports the use of distinct observation units under the direction of the emergency department, in order to promote improved patient safety and satisfaction, quality and timeliness of care, as well as reduced cost of care.

The remaining comments ranged from supportive in concept with some concerns to stating that they are onerous and burdensome. They objected to Medicaid's decision to reimburse only for observation services in distinct units and for no more than 24 hours (as opposed to Medicare reimbursement provisions which do not impose such restrictions), requirements that observation units be overseen by the emergency department, limits on the number of observation beds in an observation unit, and the fact that existing units would have to come into compliance within 2 years of the effective date.

RESPONSE

DEVIATION FROM MEDICARE POLICY GOVERNING PAYMENT FOR OBSERVATION SERVICES

This regulation establishes standards for observation units in general hospitals. It does not mandate the creation of observation units, nor does it establish Medicaid payment policy. Therefore, comments concerning the Department's decision to pay for observation services under Medicaid only if they are delivered in observation units, and only for stays of up to 24 hours, are not directly relevant to the adoption of this regulation. Nevertheless, the Department will respond to these comments. In developing the Medicaid payment policy for observation services, the Department carefully considered whether to adopt the Medicare approach which imposes few limits on observation services. Under the Medicare model, patients can receive observation services anywhere in the hospital, and there is no limit on the duration of such observation services; Medicare will pay for observation services in excess of 24 hours.

Based on a review of the medical literature and discussions with hospitals that currently have observation units, the Department concluded that the Medicare model results in lengthy periods of observation far in excess of 24 or even 48 hours, in denials of Medicare coverage of post-discharge care, and in unexpected out-of-pocket costs for Medicare beneficiaries As indicated by the comments from the New York American College of Emergency Physicians, "Studies have shown that when these patients are mixed with inpatients throughout the hospital it results in length of stays that are well beyond 24-hours." The Department concluded that a distinct observation unit is the best way to provide quality of care for patients, the best way to relieve emergency department overcrowding, and the best way to improve patient throughput.

While the Department has decided not to pay for "scatter bed" observation services nor for observation services in excess of 24 hours under Medicaid, this policy does not interfere with Medicare reimbursement nor with the practice of admitting Medicare beneficiaries to inpatient floors for stays that will be reimbursed by Medicare as observation services.

EMERGENCY DEPARTMENT OVERSIGHT

Some comments questioned the decision to assign to the emergency department, rather than other departments, oversight responsibility for observation units.

The Department is persuaded by the medical literature and experts in the field that the units operate most efficiently and effectively under the direction of the emergency department. As noted by one physician commenter, emergency physicians "think in terms of treatment minutes and hours; others think in terms of days." Emergency departments care for a diverse set of patients, routinely manage the array of diagnostic tests and short-term treatments necessary to make decisions concerning admission and discharge within short timeframes, and are best equipped for directing patient care in observation units.

TWO - YEAR GRACE PERIOD FOR COMPLIANCE

Currently there are approximately 20 hospitals that have received waivers from the Department to have an observation unit at their facility. This regulation will require such existing units to come into compliance with its provisions within 2 years. The regulation is not very different from the current waiver requirements. It will require observation units to comply with the 2010 Facilities Guidelines Institute architectural guidelines for observation units, which did not exist when some of the waivers were granted. These guidelines for observation units are very basic, and most, if not all, of the existing units will be in compliance with them. The Department believes that a two-year grace period will be plenty of time to come into compliance with these basic requirements.

LIMITATION ON NUMBER OF BEDS

Some hospitals and physicians expressed concerns about the regulation's limitation on the number of observation beds to 5 percent of certified capacity with a cap of 40 beds (hospitals with less than 100 beds may establish units of up to 5 beds). The Department determined that, since the regulation exempts observation beds from public need review, and since observation beds could be subject to unnecessary and excessive utilization, a limit on the number of observation beds is appropriate.

After careful review and consideration of all of the comments a change will not be made to these provisions.