AHA raises alarm over rising 'observation' status stays

The American Hospital Association (AHA) last week warned CMS that the agency's policy changes are driving hospitals to place patients in "observation" status for more than 48 hours instead of admitting them, HealthLeaders Media reports.

U.S. hospitals increasingly keep Medicare beneficiaries for several days under observation status, which means that the patients are never officially admitted for inpatient care and must share more of the care costs than expected. Recent data indicate that observation claims increased from about 828,000 in 2006 to more than 1.1 million in 2009. In addition, claims for observation stays lasting more than 48 hours increased by nearly 300% from 26,176 to 83,183 across that period, a CMS chart showed. However, observation status claims typically are billed at one-third the rate of inpatient claims, HealthLeaders Media reports.

According to AHA's executive vice president Rick Pollack, who authored a warning letter to CMS COO Marilyn Tavenner, hospital leaders say the increase in "observation" stays is attributable to:

  • More stringent criteria for "reasonable and necessary" inpatient admission outlined by Medicare and other payers;
  • Medicare policy changes that govern how hospitals supply and bill for observation services;
  • More frequent and profound recovery audit contractor post-payment reviews of inpatient claims; and
  • Concerns about enforcement actions.

While Pollack wrote that "no one single factor is driving the trend," he added that a recent survey of 500 hospital leaders suggested that hospitals are "essentially stuck." For example, Pollack noted that hospitals cannot discharge patients—whether an inpatient or outpatient—until they are medically ready. With more stringent admission criteria and higher ED volumes, "it is not surprising that more patients may require observation services, or that observation services need to be longer," he wrote.

"Confusion about the rules" also appears to be a driver, according to Pollack, who noted that the observation services reporting requirement changed five times in the decade since the Outpatient Prospective Payment system took effect. Moreover, "Condition Code 44," which mandates when a hospital can change a patient's status for billing purposes, can only be done after a hospitalization utilization review and with approval from the treating physician.

To address hospital concerns, Pollack suggested that CMS ramp up hospital and patient education efforts to "provide clarity…about the use of observation services." The letter noted that AHA also backs national legislation that would allow hospitals to count an observation period exceeding 24 hours toward the three-day inpatient hospital stay required for Medicare coverage in certain nursing facilities (AHA News Now, 10/28; Clark, HealthLeaders Media, 10/29).