Observation Status Not So Well-Defined in Hospitals


New research suggests use of the designation "observation status" for admitted hospital patients varies in clinical practice, despite rigid criteria the Centers for Medicare & Medicaid Services (CMS) uses to define the term.

CMS defines observation status as "well-defined sets of specific, clinically appropriate services." In most cases, the status applies to inpatient stays of less than 24 hours. Longer than 48 hours is dubbed "rare and exceptional" by the federal agency.

But in the report, “Hospitalized But Not Admitted: Characteristics of Patients With ‘Observation Status’ at an Academic Medical Center," lead author and hospitalist Ann Sheehy, MD, MS, of Wisconsin School of Medicine and Public Health in Madison found that patients' mean length of stay (LOS) in observation was 33.3 hours, but it was longer than 48 hours in 16.5% of cases. Dr. Sheehy adds that 1,141 distinct observation diagnosis codes were used for observation stays during the study period, which ran from July 1, 2010, to Dec. 31, 2011.

"What CMS has as a definition for observation status is clearly not what's happening in clinical practice, based on the length of stay and the wide variety of diagnosis codes," Dr. Sheehy says. "We had over 1,000 diagnosis codes for something CMS says is well-defined."

The issue is of particular note to hospital medicine groups as observation status disproportionately affects the general-medicine population, Dr. Sheehy says. Just over 52% of all observation stays in the study were adult general-medicine patients.

The paper adds that while the cost per encounter for observation care was less than that for inpatient care, the average reimbursement for observation care failed to cover it. The net loss per encounter for an observation stay was $331, compared with a net gain of $2,163 for an inpatient stay.

"We don't want to have hospitals operating on a huge profit margin," Dr. Sheehy says, but "you can't have hospitals delivering care at a loss consistently and have them stay solvent. It's just not going to work."

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