WSJ: 40% of reduction in hospital readmissions from jump in observation cases

Patients can face higher bills when placed under observation status

A significant portion of the recent reduction in hospital readmission rates can be attributed to more patients being put under observation status, according to an analysis by the Wall Street Journal.

Under the Affordable Care Act, hospitals are incented to reduce readmissions for certain conditions within 30 days of discharge through the Hospital Readmissions Reductions Program (HRRP). If readmission rates are too high, hospitals can see their Medicare payments reduced by as much as 3%.

The readmissions reduction program initially included patients with pneumonia, heart attacks, and heart failure and later expanded to cover some joint replacements and chronic obstructive pulmonary disease. More than 2,600 hospitals will lose a combined $420 million in Medicare payments next year under the program.

The 2,665 hospitals facing readmissions penalties this year

Hospitals have made some progress reducing readmissions. A spokesperson from CMS said data suggest hospitals had about 150,000 fewer readmissions in 2012 and 2013 compared with the two prior years.

WSJ analysis

But analysis by the Journal suggests that a large portion of the reduction in readmissions came from reclassifying certain patients as being under observation status—even though in many cases treatment is essentially the same as being an inpatient.

The Journal analyzed Medicare payment data from 2010 to 2013. It only tracked readmissions and follow-up observation stays that started with ED visits for all medical conditions currently in HRRP and excluded stays that resulted in transfers to different facilities to guard against double counting. The Journal says six outside experts reviewed its methodology and judged it as sound.  

Among the roughly 3,500 short-term acute-care hospitals subject to HRRP, readmission rates for penalized conditions dropped about 9% between 2010 to 2013, the Journal reports. Over the same period, follow-up observation-stay rates increased about 48%.

According to the Journal, the increase in observation stays "accounted for about 40% of the decline in readmissions." The publication also found that just 319 hospitals accounted for half the increase in follow-up observation stays over the study period—and that among those facilities, the increase in the use of observation status accounted for almost two-thirds of the decline in readmissions.

Effects of observation status

Experts noted that both hospitals and CMS have a stake in classifying patients as being under observation status. Hospitals can reduce their on-paper readmission rates to avoid penalties, while CMS can issue payments at lower outpatient reimbursement rates.

Some warned that if readmission reductions are the result of bookkeeping changes, they may not actually show an increase in quality.

Harlan Krumholz, a Yale University cardiologist who works on the CMS readmissions measures, says, "There are winners and losers because of the ways hospitals are coding."

More than a dozen patient advocates and nursing home officials told the Journal that hospital observation visits can result in unexpectedly high bills for patients in the form of copays and other charges. "If patients don't spend three days under formal inpatient admission in the hospital, [CMS] won't pay for a subsequent nursing-home stay," the Journal explains.

But the Journal also notes that some of the increase in observation stays could be the result of updated coding guidance from CMS in recent years. Some hospital officials agreed, telling the Journal that CMS had scrutinized their billing practices and pushed them to classify more patients as being under observation.

The CFO's guide to the two-midnight rule

In a written statement to the Journal, CMS seemed focused on the broader trend. "The evidence we see indicates that readmissions are declining," a spokesperson said (Weaver et al., Wall Street Journal, 12/1; Punke, Becker's Infection Control & Clinical Quality, 12/3).

How to avoid readmissions at your facility

Reducing your hospital's readmission rates can seem like an overwhelming task—but it doesn't have to be.

Knowing where to focus is half the battle. We've found that the best strategies target four stages of care with significant potential to influence patient outcomes. The other half is knowing what improvements to make.

That's where our Readmission Reduction Toolkit comes in. We've compiled resources from across the Advisory Board that will help you isolate and correct patient and systemic issues in the four critical stages of care:

Get the toolkit now.

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