The Secret Life & Hidden Costs of Inpatient Obs Status

You think they're just like [admissions].
You're wrong. Dead wrong.

Observation status has been making news lately. Office of the Inspector General of the Department of Health & Human Services released a memo re: Obs in Medicare, and Jay Schuur and others have been sharing some great links on the issues of inpatient observation status.

While a fairly dry topic, what might seem like some simple behind-the-scenes administrative/paperwork issue has a very real impact on our patients. Here are many of the key issues:

• Many patients who are seemingly admitted to a hospital are billed as an Obs, not a traditional admission
• Generally, the difference happens behind the curtain, and the patient has no way of knowing that they are Obs and not admitted
• Even the ED docs are usually unaware of status change, partially because:
• The switch is often made well after the decision to admit, usually by non-emergency staff (often non-clinical staff)
• Part of the reasoning for the switch is that billing people fear that a "short" inpatient admission may be challenged, whereas the Obs bill will just be paid
• However, patients can be on the hook for a much larger share of the bill for Obs vs. admission (Obs is counted as outpatient and covered by Medicare Part B, vs inpatient admissions covered under Part A)
• This can mean the patients receive charges as high as tens of thousands of dollars!
• Notably, the OIG report below notes that the overwhelming majority of Medicare patients pay less out of pocket for the Obs for the same conditions, but a small fraction pay much, much more (mostly those who need post-acute SNF care)
• The big problem is that Medicare only covers post-acute SNF stays if a patient is actually admitted for 3 days, which Obs doesn't count toward, and around 40% of Obs stays are 3 days or more!

HHS Inspector General's memo

Great summary via Kaiser Health News

Another nice overview in NEJM

Recent Boston Globe article

The last bullet above re: SNF coverage was a key issue that ACEP pushed in Congressional lobby visits during the 2013 Leadership & Advocacy Conference. The 3-day rule for SNF coverage makes the issue particularly tough because Medicare is essentially speaking out of both sides of its mouth, as Medicare is also sadly encouraging some of the shift from inpatient admissions to Obs:

Boston Globe article:

"[Private recovery audit contractors] are paid based on how much they save Medicare. They achieve savings by punishing hospitals after the fact if a patient who might have been booked as an outpatient is classified by the admitting doctor as an inpatient."

Boston.com article:

Beth Israel Deaconess Medical Center paid $5.3 million on Monday to settle allegations by the federal government that it overcharged Medicare by admitting patients to the hospital who should have been treated less expensively as outpatients.

While outpatient Obs status is cheaper for Medicare, it can shift costs to the patients. But Medicare seems to be trying to fix the situation.

Medicare has proposed a regulation that would add clarity: inpatient hospital stays of 2 nights or longer would generally presume to qualify for inpatient payment ("defined by encounters crossing 2 'midnights.'") and shorter stays would not. This rule aims to reduce the number of long Obs stays and short inpatient admissions, and it's expected to result in a net result of more inpatient admissions. Of concern is the exception that time spent in any outpatient area of the hospital (i.e. the ED) would NOT count toward the 2 nights -- meaning time spent boarding doesn't count toward the 2 midnights.

What happens if the patient doesn't actually need 2 midnights to get better? the proposed rule seems fairly appropriate:

It is the documentation [at the time of admission] of the reasonable basis for the expectation of a stay crossing 2 midnights that would justify the medical necessity of the inpatient admission, regardless of the actual duration of the hospital stay and whether it ultimately crosses 2 midnights.*

On the other hand, Obs statistics might be used in the future as clinical quality measures (of course, potentially tied to payments). That is, the patient might be billed a lot more for the visit and the ED might be paid differently based on decisions made days later by non-ED administrators, that neither the patient nor the ED docs have any control over or even knowledge about.


*see 78 Fed. Reg. at 27644-27650 (dense regulatory document; lots of good stuff at page 27648)

Fun Medicare Obs Facts!

• 1.5 million Obs stays in 2012
• Another 600k patients started off as Obs, then were admitted
• Obs: 26% stayed 2 nights, 11% stayed 3+

• Most common reasons for Obs:
• #1 Surprise! chest pain, 340k visits (22.5%)
• #2: digestive disorders, 93k visits
• #3: syncope, 81k visits
• #9: respiratory symptoms

• 78% of Obs started in the ED
• 9% came from an "OR procedure"
• Most common "OR procedure"? 
• Suprise! coronary stents (hence the "airquotes")

• Most common reason for 2+ nights? back pain
• Least common reason for 2+ nights? chest pain

• Another 1.4 million "long outpatient stays" 
• (1+ night in hospital, coded as outpatient, but not Obs)
• Also most commonly chest pain & digestive disorders
• 63% of "long outpatient stays" started in the ED

• 1.1 million "short inpatient stays" (<2 nights)
• Similar reasons to Obs
• #1: chest pain
• #2: stent

• Average costs:
• Obs: $1,741
• Short inpatient stay: $5,142

• Average patient payment:
• Obs: $401
• Short inpatient stay: $725
• Patients paid more for stents when they were Obs stays
• 6% of Obs patients paid more than what their inpatient deductible would have been