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Readmissions Are Down, Unless You Consider Rise in Observation Stays

By John Commins  
   May 31, 2018

When the rising numbers of non-admitted patients held for observation is factored in, declines in readmissions disappear. Are hospitals trying to skirt readmissions penalties, or are there valid reasons for the increase in observational status?

A study out today in the New England Journal of Medicine suggests that the much-ballyhooed reduction in hospital readmissions in recent years all but disappears when researchers factor in the increase in non-admitted patients being kept for observational stays.

Study co-author Brad Wright, an associate professor of Health Management and Policy at University of Iowa in Iowa City, spoke with HealthLeaders Media on the subject.

The following is an edited transcript.

HLM: Does your study mean we've made no progress in lowering readmissions?

Wright: Yes, more or less. There is still a very small reduction in readmissions but yeah, you're reading that correctly. But that is only when we include observation in both components of the calculation. That is not just looking at people who were hospitalized who bounced back and now we are putting them all on observation. That takes away some of the reduction in readmissions but not all of it. It's when you also include the observation stays as initial index events. That's where the wipe out happens.

HLM: Are hospitals gaming the system?

Wright: I hesitate to say that. It's difficult to say that from the claims data. It could happen, but more than likely what we are seeing is simply the result of two different things. One being the increase in the use of observations, which is happening for a host of reasons alongside the readmissions reduction program. The argument we are making is not that hospitals are somehow purposely and malevolently gaming the system. It's just a confluence of events and these are the implications.

HLM: If it's not gaming, how else could this be explained?

Wright: One piece, and this is gaming of another sort, is audits from Medicare contractors. If they are denying payments for shorter inpatient stays that they think are inappropriate and should have been handled as observations, hospitals obviously don’t want to forego payment. So, there is pressure to put more patients in observation.

From the clinical side, you've given physicians a space where, as technology has improved, patients who would have at one time been handled in the inpatient setting can now be handled appropriately in an outpatient observation setting.  

The other piece is that you create a space for physicians to ensure patient safety. Patients in the past would have been discharged home. You now have created an avenue for them to be kept in the hospital to rule out potentially life-threatening causes for whatever is going out with them.

HLM: Given your findings, has this effort to reduce readmissions been a big waste of time?

Wright: I don’t think we would necessarily say that. If you look at just the inpatient events, you see a reduction in those readmissions. Something seems to be working on that side of things. But it's not being applied to patients in observation. So, perhaps hospitals are focusing resources on insuring good transitions of care for their admitted folks when they're discharged, but they're maybe not doing that for the observation patients because they're not on the hook for having their finances penalized by that group of patients.

We're not saying get rid of the hospital readmissions program. We're not arguing for keeping it either. We are saying that you're missing out here because this group of observation patients looks a whole lot like a hospital stay. If we are trying to incentivize quality the way we figured out to do it, we should include this group of patients as well.

HLM: Is Readmissions a valid quality metric?

Wright: We're not trying to wade into the fray about the validity of readmissions as a quality measure. We're saying that for better or worse this is a metric that is widely used. We stay clear of whether or not this works. In my own personal opinion, I do think that readmissions are an important thing to measure. We have created a policy of paying hospitals a capitated amount. That puts pressure on them to get patients out of the hospital more quickly. So it's important that the pendulum doesn’t swing too far in the other direction, and you end up playing policy whack-a-mole and push it back in the other direction.

HLM: Are there ramifications for patients?

Wright: I saw recently that 10% of observation stays end up costing the patient more than an inpatient stay would, out of pocket. That never should happen. It's fine for them to be classified as outpatient until that time that their costs would exceed an inpatient stay. That should be the basis upon which we categorize them. It doesn’t seem right that patients who are technically outpatients should have to pay more than if they were an inpatient in the hospital.  

HLM: Does your study come with caveats?

Wright: You have to put the caveat in that this is a commercially insured population, but that does include Medicare Advantage, so it's not completely different from FFS Medicare. But we have to be careful and we can't generalize. At the same time, because some of the other work that has looked across these different populations has found pretty comparable findings. There is a good chance that this would hold in other contexts.

John Commins is a senior editor at HealthLeaders.


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