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Observation Status Costly for Hospitals

Cheryl Clark, for HealthLeaders Media, July 12, 2013

In a related invited commentary, Robert Wachter, MD, likened the assignment of patients to observation status to a passage from Lewis Carroll's Alice in Wonderland, because Medicare's original observation policy has "morphed into madness."

"But I don't want to go among mad people," Alice remarked.
"Oh, you can't help that," said the Cat:
We're all mad here. I'm mad. You're mad."

"How do you know I'm mad?" said Alice.
"You must be," said the Cat,
"Or you wouldn't have come here."

"If one was charged with coming up with a policy whose purpose was to confuse and enrage physicians and nearly everyone else, one could hardly have done better than observation status," he wrote.

With Medicare's proposed rule "improves on the status quo and should provide much needed clarity.""However," he wrote, "CMS could further improve the situation by requiring hospitals to inform patients of their status—observation or inpatient—as soon as it is determined, given the potential financial impact."

The agency also should be more flexible in allowing hospitals to retroactively change patients' status when more information becomes available, rather than taking the physician's initial orders to determine to what status the patient should be assigned.

See Also:
Hospitals Caught Between a Rock and a Hard Place Over 'Observation'
AHA: Observation Status Fears on the Rise


Cheryl Clark is senior quality editor and California correspondent for HealthLeaders Media. She is a member of the Association of Health Care Journalists.
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3 comments on "Observation Status Costly for Hospitals"


A Concerned Compliance Professional (7/12/2013 at 3:20 PM)
Dear Ms. Clark, I am certainly thankful that someone is paying attention to this crisis in America's hospitals and the inequality it has [INVALID]d with Medicare Fee Schedules and reimbursement patterns. There is an aspect of observation status that is often overlooked. The idea that a patient in observation should cost less, is a CMS derived fantasy. To a nurse caring for a patient in observation status, there is no difference in the care, treatment, resources or costs to the hospital provider. The patient is admitted to the same bed regardless of their admission status of inpatient or observation. Most bedside nurses and care providers know that the patients status is observation but they don't know what that means. To an organization, as stated above, the patient is still "admitted" though it may be "observation", the patient still receives care from any and all providers that are necessary to improve the patient's condition; including expensive diagnostic radiology procedures, medications, respiratory therapy procedures, physical or occupational therapy etc. The observation status patient receives the same compassionate care and respect of any other patient. The rubber meets the road as you mentioned when it comes to CMS reimbursement. But what was not mentioned is that while the patient is admitted to "inpatient observation" hospital providers must also spend thousands of dollars to hire and train staffs to "carve-out" the number of minutes or hours that the patient may be away from his or her bed to receive the expensive tests and procedures mentioned above. Not to mention that hospitals are not permitted to count inpatient observation patients in the daily census. This [INVALID]s another "ding" when the cost reports, average daily census, case mix index and other financial data is reported. In addition, CMS has been trying to "fix" this "short-stay" debacle for a number (many) of years. I remember in the 90's as an ER nurse, transcribing telephone orders from a physician. The physicians were frustrated then because they continued to be confused with the rule's revisions. CMS's many changes to the rule has [INVALID]d physician admitting orders to be defied because the physician did not write the order "precisely". Meaning, the rule changed and the "new" admission order had to change. Observation has been called such things as admit for 24 hours, 24 hour admission (even though the patient may stay up to two days), observation and admit to observation. CMS obviously recognized that observation status, may not actually mean twenty-four hours or less. It is noted in your report that patients may actually stay for two or more days. I propose to aks every Medicare beneficiary or their loved ones; caught in the "observation status"-hospital stay, if their care was any different than a previous "real" inpatient admission. How do you tell a 90 year-old widowed patient that their overnight hospital stay for uncontrolled high blood pressure did not qualify him or her and therefore they are now responsible for 20% of the charges and 100% of the self-administered drugs. As you can see, Ms. Clark, the issue of observation reaches much farther and into every crevice of our infrastructure. Thank you very kindly for reporting on this subject.

Tyco Brahe (7/12/2013 at 11:54 AM)
Observer status is a way for hospitals to skirt the rules on readmissions so their numbers looks better than they really are and the hospitals don't incur penalties. Patients get angry because they have to pay a large part of the bill (using Medicare Part B) instead of Medicare Part A.

Mary P. Malone (7/12/2013 at 11:21 AM)
I am wondering if placing recently discharged patients in observation status helps keep "readmission rates" lower?