Care Transformation Center Blog

Are you using observation status too often?

by Eric Fontana

I don’t think many will argue that observation status has been a controversial topic of late.

Last year’s proposed inpatient rule (FY 2014) highlighted the rapid growth of both observation status and long stay observation cases, with a length of stay 48 hours or more. This growth has been attributed in part to the uncertainty around the appropriateness of inpatient admissions along with the potential associated payment denials.

In response to the growth of observation status, CMS introduced the controversial two-midnight rule. As hospitals face new challenges related to this performance standard, including the prepayment Medicare Audit Contractor (MAC) audits, a common gripe we hear from hospital executives is the lack of an easy way to examine observation performance relative to their peers'.

So where can you find observation benchmarks?

Compare your performance against a custom cohort

Our new Hospital Benchmark Generator is a good place to start. The tool displays data for a wide range of financial, operational, and quality metrics, and allows you to pick a group of at least 25 hospitals that most resembles your organization and compare your performance side-by-side.

Many of the metrics in this tool, including the observation data, were the byproduct of actual member analyses. Here’s one example:

Late last year, the CMO from Mills Hospital (pseudonym) asked us to help them understand if their observation performance could be improved. Mills did not have a dedicated observation unit and the executive was concerned that observation patients were being left in bed for overly long periods, reducing inpatient bed availability or appropriate admissions. Using Medicare data, our team looked at the following performance metrics for Mills compared to a group of facilities defined by the CMO:

The proportion of hospital stays with observation
The percent of observation cases of all patient stays, including both observation and inpatient cases

Observation conversion rate
The percent of observation cases that converted to an inpatient admission during the stay

Patient average hours under observation
Average length of stay (in hours) per observation case

Our analysis indicated Mills had a high proportion of observation cases. At the same time, these cases were being admitted less frequently compared to similar facilities and had a disproportionately high length of stay, especially for patients with cardiac-related diagnoses. These findings prompted discussions at Mills to improve workflow processes surrounding observation patients while working toward developing a dedicated observation unit.

View the Benchmarks Yourself

The Hospital Benchmark Generator has much more than just observation data and is easy to use.

Simply select your hospital from the drop down menu and use the selection criteria (region, bed size, urban or rural status, wage index, CMI, etc.) to choose the hospitals you want to benchmark against. You can also handpick a cohort, as long as you meet the minimum requirement of 25 hospitals.


The Hospital Benchmark Generator

Get "apples to apples" comparisons without the hassle. See how your organization's performance on finance, quality, and utilization metrics stacks up against a custom cohort of your choice. Use the tool »


More Two-Midnight Rule Resources

Five steps to minimize your revenue risk

Moody's: Two-midnight rule will cost hospitals

How the two-midnight rule will affect your hospital

Two-midnight rule resurrects age-old question: Can observation care be profitable?

The 'two-midnight' rule: What you need to know


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Meet the Author

Eric Fontana
Practice Manager
Data and Analytics Group



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