All Content

Hospitals Not Utilizing More Observation Services to Avoid Readmission Penalties: Study


Concern that the Hospital Readmissions Reduction Program (HRRP) has led to more observation stays in an effort by hospitals to avoid readmission penalties can be put to rest.

A study published in late February in the New England Journal of Medicine shows that while readmission rates dropped dramatically with the passage of the Affordable Care Act (ACA) in 2010, this drop was not correlated with an increase in observation services within the nearly 4,000 individual hospitals assessed.1

Dr. Sheehy

Dr. Sheehy

“I think we were all really happy to see this paper because it’s really well done and it confirms what our gut feeling was as hospitalists—that the readmissions rate falling wasn’t linked to the increase in the use of observation stays,” says Ann Sheehy, MD, MS, FHM, a hospitalist at the University of Wisconsin School of Medicine and Public Health and member of SHM’s Public Policy Committee. “The paper definitively shows that hospitals are not gaming the system to avoid readmission penalties.”

Potentially avoidable hospital readmissions within 30 days of discharge were estimated in 2009 to cost Medicare more than $17 billion annually and are considered a mark of poor-quality care.2 The ACA established HRRP to penalize hospitals with higher-than-expected 30-day readmission rates for several targeted conditions: heart failure, pneumonia, COPD, acute myocardial infarction, total hip and knee replacement, and coronary artery bypass graft surgery.

“Readmission rates had been rock stable for years and years, and coincidentally they came down as observation status rose,” says Ashish Jha, MD, MPH, hospitalist at the VA Boston Healthcare System and professor of health policy at the Harvard T.H. Chan School of Public Health. “The concerning part was that we thought we were making care better by reducing readmissions, but if we were just shifting readmissions to observation, that’s not a change in care pattern—that’s a change in the classification of billing data.”

Earlier data, including an article and an analysis in the Health Affairs blog, also suggested hospitals were trading observation for readmissions, Dr. Jha says.3,4 But the new data have assuaged his concern.

“They did it right,” he says. “Previous studies lumped hospitals together in categories and were not carefully teasing apart what individual hospitals were doing, and when they looked at the individual level, we see no correlation.”

The study’s lead author, Rachael Zuckerman, an economist in the U.S. Department of Health & Human Services (HHS) Office of the Assistant Secretary for Planning and Evaluation (ASPE), writes in a blog post that approximately 565,000 readmissions were likely prevented for the program’s original targeted conditions—heart failure, pneumonia, and acute myocardial infarction—between 2010 and 2015, compared to the readmission rates in the year before passage of the ACA.5

The study examined within-hospital rates of readmission and observation stays among Medicare beneficiaries from October 2007 through May 2015. Within hospitals, there was no correlation between the decline in readmission rates and an uptick in observation stays based on more than 7 million and 45 million index stays for targeted conditions and non-targeted conditions, respectively.

Readmission rates for HRRP’s original target conditions dropped from 21.5% to 17.8%, while non-targeted conditions dropped from 15.3% to 13.1%.

The most rapid drop for targeted and non-targeted conditions occurred shortly after the ACA’s passage, from March 2010 until October 2012, particularly within the six-month window from March through September 2010. Readmission penalties began in October 2012, based on three year’s worth of baseline data.

“Hospitals were reporting readmission rates and CMS was publishing them before the ACA was passed,” says study co-author Steven Sheingold, APSE director of healthcare financing policy. “Hospitals had a good idea a year or two earlier whether they might be in a penalty situation.”

Meanwhile, between 2007 and 2015, observation stays for targeted conditions increased from 2.6% to 4.7% and from 2.5% to 4.2% for non-targeted conditions. There was a steady increase across the entire analysis period, with no significant change pre- and post-ACA.

“Readmissions seem to be more related to passage of the Affordable Care Act than observation,” Zuckerman says. Changes in observation rate are likely due to other factors, such as confusion over Medicare recovery audit contractors, the study authors conclude.

Whether the drop in readmission rates without related increase in observation is tied to improved patient health is still unknown, as Dr. Jha explains in his blog, An Ounce of Evidence. He believes it is “flatly incorrect” to assume lower readmission rates mean better patient outcomes “because readmissions are a utilization measure, a measure of integration and accountability, not a patient outcome measure, not a state of health,” he explains.

While the current study does not address this, Zuckerman says her team is interested in understanding whether overall health measures are changing.

“A hospital is not always a bad thing,” Dr. Jha says. “Sometimes they’re just what a patient needs.”

Dr. Sheehy is particularly interested in why, after October 2012, the steep drop in readmissions slowed down. Probably, she says, much of the low hanging fruit was plucked. But it suggests there is still a population of patients facing higher-than-expected readmissions, and researchers would be wise to understand who they are and how they might be better served.

“The next step is looking at people who are still being readmitted,” she says. TH

Kelly April Tyrell is a freelance writer in Madison, Wis.


  1. Zuckerman RB, Sheingold SH, Orav EJ, Ruhter J, Epstein AM. Readmissions, observation, and the Hospital Readmissions Reduction Program [published online ahead of print April 21, 2016]. N Engl J Med. doi:10.1056/NEJMsa1513024.
  2. Jencks SF, Williams MV, Coleman EA. Rehospitalizations among patients in the Medicare fee-for-service program. N Engl J Med. 2009;360(14):1418-1428.
  3. Himmelstein D, Woolhandler S. Quality improvement: ‘become good at cheating and you never need to become good at anything else.’ Available at: Published August 27, 2015. Accessed April 15, 2016.
  4. Noel-Miller C, Lind K. Is observation status substituting for hospital readmission? Available at: Published October 25, 2016. Accessed April 15, 2016.
  5. Zuckerman R. Reducing avoidable hospital readmissions to create a better, safer health care system. Available at: Published February 24, 2016. Accessed April 15, 2016.

Next Article:

   Comments ()