Observation was meant to be a short period of time for healthcare providers to assess patients and decide whether a patient requires admission for inpatient care or can be discharged. Typically this was meant to last less than 24 hours and only rarely spanned longer than 48 hours. Over the past ten years, however, the incidence and duration of observation status stays has increased significantly as a result of changes in Medicare reimbursement.
CURRENT TREND
Medicare beneficiaries are increasingly designated as observation patients when they enter hospitals; the number of which rose 88 percent between 2006 and 2012, to 1.8 million in 2012 (MedPAC 2012). At the same time, Medicare hospital admissions stayed about the same. An inpatient admission is now considered appropriate if the patient is expected to need two or more midnights of medically necessary hospital care. If not, the patient’s care is considered an outpatient service. Because observation is categorized as outpatient care, these patients usually also incur co-payments for doctors’ fees and hospital services and higher charges for routine drugs. Observation patients cannot receive Medicare coverage for follow-up care in a skilled nursing facility, which requires that they first spend at least three consecutive days (or through three midnights) as an admitted patient. Thus, observation patients often remain in the emergency department — impeding efficient throughput — or are placed on an inpatient nursing unit even though they are formally designated as an outpatient.
FACILITY IMPACT
Hospitals have begun aggregating these patients in a dedicated observation unit in response to crowded and land-locked emergency departments and concerns that care can be expedited when patients are not placed in an inpatient nursing unit and thus “out of sight, out of mind.” Although observation units require incremental staff, they do not require the resources of a private patient room with an exterior window and an en suite toilet/shower room. This less demanding set of requirements allows more flexible facility options for accommodating this new and growing group of patients.
This article is an update of a previous post.