Physicians once admitted patients to observation status when they were unsure whether the hospitalization ultimately would lead to a stay longer than 24 hours. In 1978, InterQual published its first severity-of-illness/intensity-of-service criteria for evaluating appropriateness of admission and level of service.1 These originated from a government contract to develop a quality-assurance program addressing variability in length of stay that became apparent after Medicare was implemented in 1967. Charles Jacobs, an attorney who was once an associate director at The Joint Commission, assembled a team that once worked out of an apartment in Chicago that would become InterQual.2 Over the years, InterQual evolved and was eventually acquired by McKesson.
In a study published in the May 2013 issue of Pediatrics, Fieldston et al used data obtained from the Pediatric Health Information System (PHIS) 2010 database to demonstrate that observation-status designation is used inconsistently in pediatric hospitals.3 The researchers showed that costs for observation-status stays overlap substantially with costs for inpatient-status stays. Although the results of this study may be disappointing to those who seek to reduce cost or increase value, they should not be surprising.
A previous study from several of the same authors showed that significant variation exists in how observation status is assigned versus inpatient status.4 Observation status was found to be based on duration of expected treatment or on level of care criteria (i.e. InterQual or Millman). In fact, within an individual hospital, variation could be present in the assignment of status between individual payors. For example, a short stay for asthma exacerbation could be assigned inpatient status for one payor and observation status for another payor. Patients likely received the same care and costs, especially in hospitals with standardized-treatment-care plans or protocols.
In that same study, the authors discovered that only 12 of 31 (39%) freestanding children’s hospitals had a designated observation unit. Many hospitals reported that observation patients were scattered across the ED and inpatient units (e.g. “virtual” observation unit). A majority of hospitals (14 of 16) reported that there were no differences in the delivery of clinical care to patients admitted under virtual observation compared with inpatient status. They concluded that observation status largely is a common billing designation that does not represent care in a distinct unit, nor does it represent a difference in clinical care compared with inpatient status. Therefore, it would not seem surprising to discover that the costs for observation stays are similar to those for inpatient stays.
In a second study by the same authors, they examined trends in observation-status utilization, again using the PHIS database. Patient characteristics and outcomes in observation status were compared to those of inpatient status. During the study period, with a stable Case Mix Index (CMI), an increase in proportion of patients in observation status occurred concurrently with a corresponding decrease in proportion of patients in inpatient status. For short stays, common diagnoses in observation status were similar to those for inpatient status.5 The data suggest that the patients received similar clinical care and therefore similar cost of care for these short stays.
Given the variation in how observation status is determined, and the significant overlap in clinical care seen in observation status compared with inpatient status, it would stand to reason that costs for observation stays would be similar to those for inpatients stays, especially for short stays of common diagnoses. Moving forward, the challenge for the medical community is to decide how to consistently determine which patients or clinical conditions are appropriate for observation status. Addressing additional costs incurred by patients and their families that accompany the designation of observation status will be critical. Only then can pediatric hospitalists be expected to optimize the use of observation status, with the goals of decreasing clinical costs and improving quality outcomes.
Dr. O’Callaghan is a pediatric hospitalist and clinical assistant professor of pediatrics at Seattle Children’s Hospital and the University of Washington School of Medicine. He also is a Team Hospitalist member.
- Mitus AJ. The birth of InterQual: evidence-based decision support criteria that helped change healthcare. Prof Case Manag. 2008;13:228-233.
- Fieldston ES, Shah SS, Hall M, et al. Resource utilization for observation-status stays at children’s hospitals. Pediatrics. 2013;131:1050-1058.
- Macy ML, Hall M, Shah SS, et al. Differences in designations of observation care in US freestanding children’s hospitals: are they virtual or real? J Hosp Med. 2012;7:287-293.
- Macy ML, Hall M, Shah SS, et al. Pediatric observation status: are we overlooking a growing population in children’s hospitals? J Hosp Med. 2012;7:530-536.