Insurers’ use of certain criteria to separate hospital stays into inpatient or observation status remains widespread. Observation status ensures provider reimbursement for hospitalizations deemed necessary by clinical judgment but not qualifying as inpatient care. Admission under observation status impacts the patient’s financial burden, as well, with observation admissions typically associated with increased out-of-pocket costs.
Although hospitals have always faced decreased reimbursement for observation admissions (compared to inpatient admissions), new penalties attached to readmission for patients discharged from an inpatient stay raise the potential to impact hospitalist practice by incentivizing increased use of observation status for hospitalizations in order to avoid readmission penalties.
Have readmission penalties associated with inpatient admissions actually led to increased use of observation status by hospitalist groups?
SHM’s 2014 State of Hospital Medicine report provides insight into this question. In groups serving adults only, observation discharges accounted for 16.1% of all discharges (see Figure 1). If the survey’s reported same-day admission and discharge rate of 3.5%, collected separately this year, can be assumed to be largely reflective of observation status discharges, then the true percentage of discharges under observation status is likely closer to 19.6%.
The question of determining whether to bill episodes as inpatient or observation status was asked in the 2012 survey, as well, though by a different methodology: 20% of admissions were billed as observation status by hospitalist practices seeing adults only. Even with some observation admissions in 2012 being converted to inpatient status later in the hospital stay (a factor accounted for in the 2014 survey by changing the wording of the survey so that it asks about status at discharge), not much overall change in hospitalist group practice can be appreciated.
Does the overall observation status use rate tell the whole story?
When 2012 and 2014 survey data are separated by academic status, a clear change in practice over time can be seen. Academic HMGs experienced an increase in use of observation status, from 15.3% of admissions in 2012 to 19.4% of discharges in 2014 (or 22.8% in 2014, if same-day hospital stay responses are added to the observation data). In comparison, nonacademic hospitalist practices reported a decrease in observation status utilization, from 20.4% of admissions in 2012 to 15.6% of discharges in 2014 (or 19.2%, accounting for same-day discharges as observation status).
Academic HMGs, which frequently rely on housestaff for the finer points of patient care documentation, must consequently rely on documentation largely written by providers with less experience and incentive to optimize documentation for billing, compared to experienced hospitalists. It’s plausible to speculate that the benefits associated with compensation for inpatient status for hospitals, compared to the risks of financial penalty associated with billing under inpatient status, could be different for academic than for nonacademic hospitalist groups, due to the differences in the quality of documentation between the two practice types, and that academic HMGs, or the hospitals they work with, see the risks associated with inpatient status billing as high enough to change billing practices. Nonacademic hospitalist groups, on the other hand, may rely on the experience of their retained hospitalists to document justification for inpatient status more effectively, and may thus maximize the financial benefit of inpatient status utilization sufficiently to overcome associated financial risks.
In an ever-changing reimbursement and political advocacy landscape, future SHM surveys will be pivotal in assessing what happens with trends surrounding use of observation status for episodes of hospital care.
Dr. Smith is a hospitalist and assistant professor at Northwestern University in Chicago, Ill., and a member of SHM’s Practice Analysis Committee.