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Hospitals Caught Between a Rock and a Hard Place Over 'Observation'

Cheryl Clark, for HealthLeaders Media, September 15, 2010

Her mother was taken to ISJ for five nights in the spring, two nights more than the Three-Day Rule for qualifying stays required by Medicare for skilled nursing facility benefits. However, she was told her status was "observation," even though the family has hospital documentation indicating she was admitted from the emergency department as an inpatient.  The same thing happened last week.

"This has been so incredibly stressful for my dad and our family," Lubrant told me this week. "We're lost. What rights and options do we have? Mankato is a small town with only one hospital."

Nevertheless, fear at ISJ and many other hospitals over possible RAC investigations if they do things any differently is apparently increasing so fast across the country, many hospitals are dramatically bumping up their use of observation status, statistics show.

The Centers for Medicare & Medicaid Services says it also has noticed the trend, and on Aug. 24 held a "listening session" in Baltimore to get a better sense of the reason.

According to CMS spokeswoman Ellen Griffith, more than 2,103 hospital, nursing home, patients, family members, and others dialed in on the phone lines, a "listening session" record, Griffith says. Providers across the country called out their exasperation with the system.

"We're here to understand why this trend is growing," Jonathan Blum, CMS's deputy administrator and director of its Center for Medicare told them. "How can CMS better educate beneficiaries? Should CMS make changes to guidance policies? We're all ears; we want to understand why this trend is happening."

Earlier this month, I asked CMS to give me actual numbers on how much more the "observation" category is being used. Griffith sent me a chart showing that in the four calendar years from 2006 to 2009, "observation" status claims climbed 26.7%, from 828,353 to 1.131 million.  Especially noteworthy was the increase in claims for observation stays for patients kept for more than 48 hours, which more than tripled from 26,176 to 83,183.

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11 comments on "Hospitals Caught Between a Rock and a Hard Place Over 'Observation'"


Priscilla T. Bassett (2/8/2012 at 6:01 PM)
a fair presentation of the hospital side

Kay F. (9/21/2010 at 11:45 PM)
I know Medicare expects the beneficiary to ask a hospital whether they are inpatient or observation. Medicare even publishes a brochure explaining the difference. But also according to Medicare if she was admitted as Inpatient and then changed to observation then it was then this hospitals responsibility to notify her of the change. Did it really take 5 days for them to notify her? And why would a hospital keep a patient past 48 hours if they are not sick enough to be an "inpatient"? It seems like a real financial loss for the hosptial.

sobrien (9/21/2010 at 5:04 PM)
When a physician makes the decision to keep a patient in the hospital, one of the first decisions he/she must make (usually with the guidance of a Utilization Review Nurse) is whether the patient should be admitted as an 'Inpatient', or made 'Observation'. The criteria that is used to guide this decision is spelled out in the InterQual or Millimen criteria. With each years update in the criteria guidelines, Inpatient criteria has become increasingly harder to meet. The new criteria, which became active as of August 1st, makes it especially difficult to justify an 'Inpatient' admission. The patients aren't any less sick, but the criteria points us toward an 'Observation' stay. Though CMS guidelines recognize that the decision to admit a patient is a "complex medical decision", the hospital is at risk of being denied payment if the patient is admitted to 'Inpatient', yet does not clearly meet this criteria. The changes this year will likely show an even bigger jump in the use of 'Observation' stays, with the resulting burden begin placed on both the hospitals, as well as the patients and their families.