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Have you noticed that your hospital is using the observation status more instead of simply admitting the patient? Three recent cases (from both a University hospital and a private hospital) have me interested in this question. It appears that this is a national trend which the American Medical Directors Association (AMDA) has apparently confirmed with the Centers for Medicare and Medicaid Services (CMS.) Per CMS the most recent data show claims for observation care rose from 828,000 in 2006 to more than 1.1 million in 2009. At the same time, claims for observation care lasting more than 48 hours tripled to 83,183.

Observation services include short-term treatment and tests provided in the hospital to help doctors determine if the patient should be admitted for inpatient treatment and whether the patient meets the admission criteria (eg. Interqual criteria). Medicare considers observation services outpatient care, which requires beneficiaries to cover a bigger share of drug costs and other expenses than they would when receiving inpatient care, and unless patients spend at least three consecutive days as an inpatient, Medicare will not cover follow-up nursing home expenses after discharge. And while utilization review can change an admission to observation status later, an observation status cannot be retroactively changed to an admission.

While in theory observing patients instead of admission is a great idea (I don’t want my Medicare dollars paying for unneeded hospital care,) I wonder how well the inpatient criteria apply to octagenarians or nonagenarians?

In one case, a 90+ year old lady was admitted with a urinary tract infection that led to pretty significant delirium on top of her baseline cognitive impairment. But, since she kept pulling the IVs out in the ER and her delirium was not recognized, she was admitted as observation (hey no IV fluids, well she doesn’t need to be in the hospital!), and kept on observation status for three days. Remarkably, she was transferred to a Skilled Nursing Facility for rehabilitation to get stronger before it was recognized she had never had a qualifying hospitalization. She subsequently was sent back to an Assisted Living facility where she was only able to stay because her family purchased 24 hour care. Her rehabilitation was delayed by only receiving a day of therapy a week.

Two other recent cases of 90+ females with non-operative fractures who were admitted under observation and yet could not weight bear were able to receive regular therapy in a skilled facility only because they had the financial resources to privately pay.

Is it possible that despite saving the CMS money spent on hospitalization, Observational status will result in the frail elderly losing independence at home, or worse will lead to a two-tiered system where the wealthy get care and the poor do not?

Eric Tangalos, MD,CMD spoke on behalf of AMDA at a congressional briefing entitled Observation Care and Medicare Coverage of Skilled Nursing Care held on October 20th.
Dr. Tangalos recommended at the congressional briefing that observation stay should count toward the time in a hospital stay satisfying the three-day inpatient eligibility requirement for coverage of skilled nursing facility services under Medicare. I would argue that we should eliminate the three-day stay inpatient hospital requirement for the Medicare skilled nursing facility benefit altogether.

Do you have a story of a bad geriatric outcome due to observation?
What do you think?

by: Paul Tatum

This Post Has 6 Comments

  1. This raises some questions about what constitutes ethical and appropriate behavior by hospitals and their utilization review departments.

    Many of the cases described sound appalling–cases where older patients were classified as observation, but any clinical observer would feel hospital admission was appropriate.

    So why are there patients that need admission, but instead spend days on observation status?

    One possible explanation is that hospital utilization review departments may be applying a revenue maximization strategy. If a utilization review department believes there is a chance that a patient's admission may be retroactively rejected by auditors, it may viewed as preferable to keep the patient under observation status. Perhaps some knowledgeable GeriPal reader can help us understand the economic implications of all of this. ie, what are the $ impacts to the hospital of admission vs observation vs Medicare denial of admission necessity.

    It seems an important principle is that hospitals, including their utilization managers have a responsibility to put their patients first and $ second. If utilization review determines that there is a risk an admission will be viewed as unneeded by auditors, it should lead to one of two paths:

    a) Consider whether the patient really would be better cared for at home. When this is possible, it costs less, but more importantly is better for the patient, because hospitalization induces its own set of risks for patients.

    b) If the clinicians feel unsafe sending the patient home, even though the utilization review criteria suggest otherwise, it is very likely the clinicians are right.

    Often the problem is that an important feature of clinical instability is not documented, or even recognized. This is an area where Geriatrics can help. As Paul notes, there is often unrecognized delirium issues or functional impairments. The solution in this case is to recognize and document these issues.

    But keeping a patient in observation status for days because the clinicians believe home is not safe, but Utilization review fears auditors may say otherwise, is not appropriate.

  2. I am wondering how this fits into the change in Medicare reimbursement for readmission penalties for those patients who are readmitted to the hospital within 30 days of discharge? This is to start Oct. 2012. Does anyone know if this practice might be related to the change that is coming? If the patient was never admitted, but the hospital was paid for observational care, then when the patient comes back within the first month of not being admitted are they free and clear? Is this one way they may try to get around this?

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  4. Jesse. 350z, I am also interested in knowing if observation is being used in preparation for preventing 30 readmission penalties. In reference to eliminating the 3 day qualifying stay; I would also like to see some reform with the process of requireing a 3 day qualifying stay for skilled nursing home stays (rehab, etc.). I do have major concerns of allowing Skilled Care in nursing without at least a qualifying observation at the hospital. In my experience skilled nursing facilitihomed not need any room for additional abuse of the benefit and waste of the medicare $.

  5. Several comments: 1. Readers may wish to know, if they do not already, that a lawsuit was filed late in 2011 by the National Senior Citizens Law Center, in collaboration with the Center for Medicare Advocacy, on this issue.

    2. There is research on this issue underway at Brown University attempting to validate CMS' numbers, to describe the types of patients for whom the use of outpatient billing is significantly higher, and to attempt to estimate the financial consequences of outpatient status for patients. The data will begin to be published/presented within the next few months.

    3. The use of observation status by hospitals and CMS as a financial tool is likely going to increase significantly now that CMS is putting important new penalties into place to reduce avoidable 30-day readmissions for patients with specific diagnoses. Presumably, an observation status stay is not an "admission." Therefore, someone who has an observation stay and then comes back to the hospital within 30 days and is admitted likely would fall under the "readmission" penalty.

  6. In re: my last post:
    Change last sentence to read:
    "Therefore, someone who has an observation stay and then comes back to the hospital within 30 days and is admitted likely would NOT fall under the "readmission" penalty. Big change!

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