Observation Units. All Good. Right?

By  |  February 6, 2012 | 

Would you like to read about some good policy, but bad execution?  Browse on.

On the physician side of the ledger, we trust that observation units, i.e., geographic weigh stations to determine fitness of admission or discharge, are a good thing.  Earlier discharge, focused resource use, possibly less exposure to hospital badness—all winning strategies to improve efficiency.  What is the problem then?  From todays WSJ:

The issue arises when a Medicare beneficiary who comes to a hospital is placed in a status called “observation care.” This is supposed to mean that patient is being watched while doctors decide if she can be discharged, or if she is ill enough to be admitted as a true inpatient. Observation is typically supposed to last 48 hours or less.

The number of observation hours grew to around 36 million in 2009, from 23 million in 2006, according to the Medicare Payment Advisory Commission. The commission also saw a growing number of stays lasting 48 hours or longer between 2006 and 2008.

The problem for Medicare beneficiaries is that observation services can result in unexpected expenses. They are considered outpatient care—even if the patient is in the hospital for several days. That means the visit isn’t included under Medicare Part A, which covers the total cost of hospital services after a deductible. Instead, the patient owes copayments for services under Medicare Part B, which covers outpatient care and doctors’ work. (Beneficiaries who have Medicare Advantage coverage pay according to their particular plan’s rules.)

In the evolving milieu of shared savings or rewards for rapid patient turnaround, let us review the scorecard: The hospital?  Win.  The doctors?  Win.  The insurance company?  Win.  Medicare? Win.  Who is left?  Oh yeah, the patient.  They get screwed, and big time.

A visit to the hospital, with all the technology and goodies to ramp up the copays and other expenses—and a generous bill to greet them, perhaps unknowingly, several weeks later.  Not good policy, especially in an imbalanced system that fails to weigh escalating costs of care and the declining ability for most seniors to cope with out of pocket expenses.

I am not advocating the status quo, and I sure as heck am not looking to throw good money after bad—not in the financial peril we are in today.  What I am endorsing is a pragmatic relook at a process that will surely anger and hit beneficiaries hard.  That’s what doctors and professional societies do.  Dumb policy is just that.  Dumb.  We have a voice, and we need to use it.



  1. James O'Callaghan, MD FAAP FHM February 6, 2012 at 7:58 pm - Reply

    Brad, are you potentially avocating getting rid of observation status altogether? If so, amen brother. As a pediatric hospitalist who has an interest in billing and coding, I find the decision of observation vs. inpatient arbitrary, confusing and maddening. How much money do hospitals and physicians spend trying to sort out the answer to this question?

  2. Jack Percelay MD, MPH, FAAP, SFHM February 6, 2012 at 9:44 pm - Reply

    Thanks Brad for advocating for patients on this one. I”m not quite as prepared to abandon OBS as my pediatric colleague James is. I’ll just yearn for “the good old days” in the mid 90’s when I was moonlighting as an in-house pediatrician at Kaiser, the precursor of today’s hospitalists. We didn’t have the systems of care in place that we do now, but we could make effective use of brief stays in the hospital to do what was best for the patient, while avoiding excess resource utilization by simply practicing good medicine.. This is one arena where aligning incentives for everyone makes sense. Another plug for the ACO model, but when where the patient has some skin in the game as well.

  3. James O'Callaghan, MD FAAP FHM February 12, 2012 at 1:58 am - Reply

    As always, Jack has some insightful comments and wisdom–thanks Jack! Just to be clear, I am all for short stays, smarter resource utilization, aligning incentives….I just wish that I didn’t have to think about the coding decision of inpatient vs. observation. Wouldn’t it be great if we could just do the work appropriately and not have to wrestle with this decision?

    And where are all the adult hospitalists? Shouldn’t they be fired up about this issue?

  4. […] Hospitalist Leader reports that the number of hours patient spend in observation units grew to around 36 million in 2009, from 23 million in 2006.  Who wins from this arrangement?  Not […]

  5. Michael J. Goldberg MD MBA April 28, 2012 at 2:21 pm - Reply

    Interesting comments. Although initially designed to increase throughput in ERs and aid in deciding who needs more expensive inpatient treatment as opposed to home management these have become revenue makers for hospitals at the expense of patients. Not the government’s fault but you get what you incent. Another potential expense for patients not mentioned above is that if they are discharged from these units SNF stays are not re-imbursable by medicare. So much for patient-centric medicines. SNFs are another incentive gone wrong. They have become physical therapy mills. They can charge for one to one time of therapists making large margins and collecting for “RUGs”, but really are not providing the less expensive step down services that they should. SNFs and observation units need better regulation. Outcomes should be rewarded rather than services. This would create value.

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About the Author: Brad Flansbaum

Brad Flansbaum
Bradley Flansbaum, DO, MPH, MHM works for Geisinger Health System in Danville, PA in both the divisions of hospital medicine and population health. He began working as a hospitalist in 1996, at the inception of the hospital medicine movement. He is a founding member of the Society of Hospital Medicine and served as a board member and officer. He speaks nationally in promoting hospital medicine and has presented at many statewide meetings and conferences. He is also actively involved in house staff education. Currently, he serves on the SHM Public Policy Committee and has an interest in payment policy, healthcare market competition, health disparities, cost-effectiveness analysis, and pain and palliative care. He is SHM’s delegate for the AMA House of Delegates. Dr. Flansbaum received his undergraduate degree from Union College in Schenectady, NY and attended medical school at the New York College of Osteopathic Medicine. He completed his residency and chief residency in Internal Medicine at Long Island Jewish Medical Center in New York. He received his M.P.H. in Health Policy and Management at Columbia University. He is a political junky, and loves to cook, stay fit, read non-fiction, listen to many genres of music, and is a resident of Danville, PA.


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