Observation Units: Society Wins?

By  |  September 26, 2012 | 

However, where is the part about changing the instruction manual?

A new study out today in Health Affairs looks at observation units and their potential to reduce direct spending on inpatient care.  The investigators found:

“Using a systematic literature review, national survey data, and a simulation model, we estimated that if hospitals without observation units had them in place, the average cost savings per patient would be $1,572, annual hospital savings would be$4.6 million, and national cost savings would be $3.1 billion. Future policies intended to increase the cost-efficiency of hospital care should include support for observation unit care as an alternative to short-stay inpatient admission.”

In analyses such as this, estimates are based on literature availability and quality, and admittedly, diversity in diagnoses goes beyond chest pain.  Recall many of the studies you read on this subject are “chip shot” presentations (like chest pain), and extrapolating findings to all comers is difficult.  However, it focuses us on where efficient practice exists and hospital redesign might occur.

Notably, the authors mention the 800-pound gorilla:

“The rising cost of inpatient hospitalization has drawn increased scrutiny from both public and private payers.  Specifically, the Centers for Medicare and Medicaid Services was recently authorized to expand the Recovery Audit Contractor program to all fifty states after a successful pilot demonstrated more than $900 million in savings by identifying short-stay inpatient admissions that were deemed inappropriate.

As a result, hospitals have felt pressure to avoid short-stay inpatient admissions and have increased the use of observation care, employing the “admit-to-observation” status. But this status is largely a billing change and not a delivery model change intended to improve efficiency.”

I have written about this problem before.  This study is helpful.  The intervention saves society and payers money, and will likely reduce patient harm.  However, without the right incentives, why would a hospital take this admission hit:

Additionally, without a modification in the observation status rule, confusion will persist, and hospitals (and hospital-based providers) will continue to wade through a swamp of opaque CMS guidance.

To fix this problem, hospitals will need to downsize slowly, reducing both their direct and indirect ER and ward costs over years, not months.  They will also require a payment policy that makes sense.  Thus, an admit is an admit; an observation is an observation; and the patient exits the hospital unharmed.  A per diem versus bundled payment is another conversation, for another day.

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About the Author:

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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