Use of observation status rises by 34%—and patients may suffer

Patients incur greater out-of-pocket expenses

The ratio of observation stays to inpatient admissions per 1,000 hospital visits increased from 86.9 in 2007 to 116.9 in 2009, a new study finds.

Researchers at Brown University analyzed hospital records and Medicare claims data from 29 million patients from 2007 to 2009 and found that a decline in inpatient admissions accompanied the growing use of observation status.

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The study also found:

  • Observation stays increased from 2.3 per month in 2007 to 2.9 in 2009 per 1,000 beneficiaries;
  • Inpatient admissions declined from 23.9 in 2007 to 22.5 in 2009 per 1,000 beneficiaries;
  • Total observation cases increased from 814,692 in 2007 to 1,019,881 in 2009; and
  • The length of stay (LOS) for observation patients increased from 26.2 hours in 2007 to 28.2 hours in 2009.

“It would be difficult to imagine that over this three year period that the overall health status of older Medicare beneficiaries would change that much,” says Zhanlian Feng, assistant research professor at Brown’s Center for Gerontology and Health Care Research.

Medicare’s more recent cost-control policies may be a factor, researchers and observers say. Don May, vice president of the American Hospital Association, notes that Medicare’s Recovery Audit Contractor program demands refunds from hospitals for inappropriate inpatient admissions.

How this impacts patients

The rising use of observation status poses financial challenges for patients, given that observation unit patients are not eligible for full Medicare benefits and can incur higher out-of-pocket expenses as Medicare does not cover common medications.

Observation patients also can lose coverage for follow-up nursing home care (Jaffe, “Capsules,” Kaiser Health News, 6/4; Zigmond, Modern Healthcare, 6/5; Feder, Politico, 6/4).


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