PETITION OF:

SECTION 1. Section 1 of Chapter 176O, of the General Laws, as appearing in the 2004 Official Edition, is hereby amended by adding after the definition of “network” and before the definition for “office of patient protection” the following new definition:
“Observation Services”-health care services furnished on a provider’s premises, including the use of a bed and periodic monitoring by the provider’s nursing or other health care professional staff, which are reasonable and necessary to evaluate a patient’s condition or determine the need for a possible admission to the hospital as an inpatient. These services are covered only when ordered by the treating health care professional authorized under applicable State licensure law and hospital staff bylaws to admit an insured to the facility or to order outpatient tests. Observation services may extend up to, but should not exceed, 8 hours in duration. In extraordinary circumstances an observation stay may extend up to 24 hours where the treating health care professional determines that additional time is needed to complete an evaluation necessary to determine the medical necessity for an admission.

SECTION 2. Chapter 176O, of the General Laws, as appearing in the 2004 Official Edition, is further amended by adding after Section 10 the following new Section 10A:
Section 10A: Observation Services.
(a) Any classification of an insured as requiring or receiving observation services shall be based solely on the medical judgment and intent of the treating health care professional after due consideration of the insured’s presenting signs and symptoms and shall not extend beyond 8 hours duration. If such health care professional’s opinion, based on this evaluation, is that the insured requires less than 24 hours in a facility and does not require inpatient level of care during this period, such insured shall be classified as outpatient observation. If the treating health care professional’s opinion after consideration of the insured’s presenting signs and symptoms is that further evaluation and health care services shall require more than 24 hours in a facility, the insured shall be classified as an inpatient. The treating health care professional, in his opinion and pursuant to the provisions above, may authorize that observation services be provided in excess of 8 hours in extraordinary circumstances when the insured’s condition remains unclear and only requires monitoring by clinical staff. For observation services extending between 8 hours and 24 hours in duration, should the insured require health care services in addition to monitoring by clinical staff, including continued diagnostic testing and/or active treatment of the insured’s condition, that insured should be admitted to the facility as an inpatient. Notwithstanding the provisions of this subsection, observation services shall not extend beyond 24 hours in duration under any circumstance.
(b) If, after applying the principles established in subsection (a) of this section, a provider and the carrier are unable to agree on the classification of an insured into an inpatient or outpatient setting, the carrier must release to both the hospitalized insured and the provider a written notification that (1) identifies the specific information upon which the determination was based; (2) discusses the insured’s presenting symptoms or condition, diagnosis and treatment interventions and the specific reasons such medical evidence fails to meet the relevant medical review criteria for an admission; (3) specifies any alternative treatment option offered by the carrier, if any; and (4) references and includes applicable clinical practice guidelines and review criteria.
(c) If after the information directed under subsection (b) of this section is made available and a dispute continues to exist, then either the insured or a representative of the insured (which may include the provider) that has been notified by the carrier that it has denied coverage and payment for inpatient hospital services provided to the insured, may file an appeal with the Office of Patient Protection, so called, established under Section 217 of Chapter 111 of the General Laws.
(d) Notwithstanding any other provision of this section, after a determination that a particular health care service was appropriately classified as inpatient or an observation service, the payment rules of this subsection shall apply.
(1) A post surgical day patient shall be classified as requiring and receiving observation services if, after a normal recovery period, additional care is required to determine the need for an admission to a facility. For purposes of this paragraph, the term “normal recovery period” shall mean 8 hours after the performance of the surgical procedure. If an insured is classified as requiring or receiving observation services after the normal recovery period, the carrier shall reimburse the provider the cost for observation services in addition to any reimbursement otherwise due said participating provider for the surgical procedure.
(2) The carrier shall allow participating providers to bill for observation services provided prior to the date of admission and said carrier shall pay participating providers the cost for such observation services. Notwithstanding the foregoing, this provision shall not prohibit participating providers and carriers from entering into contractual arrangements that supercede this provision.

SECTION 3. The Commissioner of Insurance shall promulgate regulations, no later than 90 days following the effective date of this Act. The regulations as set forth, shall be effective in contracts between carriers and health care providers that are entered into, renewed, or amended on or after the effective date of this Act.