Patients with Observation Status

From 2006 to 2008, the use of hospitalizations with observation status increased 26% for Medicare beneficiaries; during a similar period, inpatient stays decreased by 4%. Length of stay (LOS) for observation hospitalizations increased from 26.2 hours to 28.2 hours from 2007 to 2009.

Previous studies have focused on observation care delivered in units dedicated to observation care provided to a limited number of short-stay patients with well-defined diagnoses. Over the past decade, however, federal legislation has redefined observation status, shifting more observation care to hospital wards.

The Centers for Medicare & Medicaid Services (CMS) defines observation status for hospitalized patients as a well-defined set of specific, clinically appropriate services. Observation status usually lasts <24 hours; CMS notes that in “only rare and exceptional cases” should observation status last >48 hours.

Hospitalization without admission confuses patients and healthcare providers and may create substantial financial issues. For Medicare patients, observation care and failing to meet inpatient admission criteria means that Medicare Part A will not cover care because observation care is considered outpatient care.

Medicare Part B and private plans may cover observation care, but those plans often require high deductibles as well as patient co-pays. In addition, observation care days do not count toward the 3-day prequalifying stay required by Medicare for patients needing skilled nursing facility care on discharge.

Researchers recently conducted a retrospective descriptive study of all observation status and inpatient stays at the University of Wisconsin Hospital and Clinics from July 2, 2010, to December 31, 2011. The study was designed to describe observation clinical practice and to investigate the cost implications of inpatient and observation care. Study results were reported online in JAMA Internal Medicine [doi:10.1001/jamainternmed.2013.8185].

The primary outcomes and measures were patient demographics, LOS, difference between cost and reimbursement per stay, and percentage of patients discharged to skilled nursing facilities.

Patient encounters were stratified by observation or inpatient stay and then by the service responsible for the encounter. Over the 18-month study period, there were 43,853 hospitalizations; 89.6% (n=39,275) were inpatient and 10.4% (n=4578) were observation, with 1141 distinct diagnosis codes. Of the 4578 observation care encounters, 52.5% (n=2404) were for adult general medicine service. Adult general medicine encounters also had the highest percentage of observation stays (2404 of 9454 [25.4%]).

Overall, 51.4% of observation patients and 47.1% of inpatients were women. Adult general medicine observation patients and inpatients were more likely to be female, with all other categories having <50% female patients.

Mean observation LOS was 33.3 hours; 44.4% of stay durations were <24 hours and 16.5% were >48 hours. Adult general medicine observation encounters had the longest LOS. Overall, 7.0% of observation and 13.7% of inpatient encounters resulted with patients being discharged to skilled nursing facilities. The highest percentage of discharges to skilled nursing facilities was among adult general medicine inpatient and observation stays.

Compared with observation stays, the cost per encounter for inpatient care was higher. However, on average, reimbursement was insufficient to cover the cost of observation care. The inpatient margin per stay was positive whereas observation care had a negative margin per stay: the net per-encounter loss for observation care was $331, compared with a net gain for an inpatient stay of $2163.