What If Observation Status Worked in the Real World?

By  |  September 10, 2014 | 

I have been reading SHM’s recent White Paper on Observation Status and getting depressed about the implications for our patients and our care.  I don’t enjoy having conversations with patients and family explaining how in spite of them being in an actual hospital bed, and sleeping in an actual hospital room (ok, maybe not sleeping so well), and getting all care that modern medicine can deliver, their status has been deemed to be “observation,” AKA, not a “real” hospital admission. You see a “real” hospital admission is one in which everything that is happening to you in observation status still happens (you know, the bed, the upstairs room, the care, etc.), but a doctor has been forced to give an educated guess, ummm gut call, umm cough cough… about how long you will be in the hospital.

Then it occurred to me that maybe we could turn this around?  This system seems to be working so well at controlling costs for the payers, what if we and our patients utilized it out in the real world, you know, when WE are the payers.

Saturday Morning, Valvoline Rapid Oil Change
Technician: Sir, your car is ready.  That’ll be $79.99.  We did an oil change, air filter replacement, and rotated your tires.

Me: [Looking at my watch.] Great, I see that you only had my car for 1 turn of the big hand past 12, therefore, I will be calling this an “observation status” Here’s $40 and let’s call it even.

Technician: That’s not fair

Me: [Showing him my watch.] Next time, maybe you can justify keeping the patient, I mean my car, over three turns of the big hands past 12. That might justify getting the full benefit.

September 2, Lil’ Wonders Child Care
Pre-School Teacher: Welcome, Dr Kealey and Little Zane!  Dr, we are so excited to have him in our pre-school this year.  Trust me, we’ll have him ready for Kindergarten in no time!

Me:  Yes, I can already see he loves it here!  The staff are so caring, the facilities top notch.  It’s just… It’s just…

Pre-School Teacher: What is it?  Is there something wrong?

Me:  Well, Zane comes from very good genes.  My wife and I were both reading by age 4 you know.  And your teaching methods come highly recommended.  It’s clear to me that you will have him up to speed and ready for school in just a few months.

Pre-School Teacher:  I am certain we will!

Me: Good, then you understand that I will have to classify this as an “observation status” learning environment and pay only a partial payment.

Pre-School Teacher: But sir, we cannot do our work on only partial payments.
Me: Perhaps you could pass on your costs directly to Zane, but honestly, he’s too young even for an allowance. Good luck with that!

April 15, My CPA
Me: Bill, I don’t know what I would do without you.  Tax season is just so stressful.  You just take a load off my shoulders.

CPA:  Dr Kealey, thank you for your business.  I’m so glad I have helped.

Me: Now, Bill, I see the invoice you submitted this year is again for full tax preparation services.  Your bill has gone up every year that we’ve been working together.  But correct me if I’m wrong, but doesn’t it just get easier every year to do my return?  Most items carry over from the prior year, right?

CPA:  Well, yes, but one has to keep up with tax law.  And I have to make sure I am getting you every deduction you are due.
Me: Oh, I get it, but I have been working with these people at the hospital who have helped me look at things differently.  They have helped me see that these last three years, your services, while excellent, maybe don’t fall into the full tax preparation bucket.  They are more consistent with “observation status” tax preparation.

CPA: What?

Me:  Don’t be alarmed. I know I am no finance person, and I’m much too busy to do this myself, so I’ve asked these new friends of mine, the recovery audit specialists, to just take a look at the full scope of services you’ve performed for me the last three years.  There is nothing to worry about… if you can pull all your documentation and justify your charges to me. If not, well then we can just have you refund your fees and maybe tack on a little fine. It’s not like anyone is going to jail or anything!

Observation status started out as a good thing, a way to recognize those cases in the emergency department that truly needed an additional period of 6-8 hours of observation, but when patients are brought into the hospital, spending the night, getting full services, and full care, they should not arbitrarily be given a less intense status that shifts the payment burden back on them and deprives them of their medicare benefits. Hospitalists and Emergency Physicians should not seen by their patients as the arbiters of an unfair system.  Patients should have the luxury of trusting their physician, knowing that they are doing all they can to advocate for them.


  1. Stefani Daniels September 10, 2014 at 9:12 am - Reply

    So, here’s my pitch….If ED docs only took care of emergent patients, they would have the time to fully evaluate a patient’s need for acute care. But they are so overwhelmed by non emergent patients who are allowed to cross the threshold into the ED that the ED gets backed up, patients have to move, so the doc says, “put that possible emergent patient in a bed and call it whatever you like…just give me some breathing room in the ED.”
    So the trick is to keep the non emergent patients from crowding up the ED so the doc has the time to spend with the potentially emergent patient and make an informed decision about whether hospitalization is needed.

    • Burke Kealey
      Burke Kealey September 10, 2014 at 10:24 am - Reply

      Hi Stefani, Yep, your thought is right on and shows how we all have to work as a team, a system. We help primary care be available to see those patients, which helps our emergency medicine colleagues not get mired down with non-emergencies, which improves flow and efficiencies, helping us upstairs, which allows us to help primary care….

  2. Ronald Hirsch, MD September 10, 2014 at 9:25 am - Reply

    Two issues:
    You state, ” they should not arbitrarily be given a less intense status that shifts the payment burden back on them.” You are wrong. If you do the math, observation is less expensive to a patient than inpatient admission in all circumstances, as long as you follow the two-midnight rule. Observation itself is not a problem; the problem is how much CMS reimburses hospitals for providing observation services.

    You also criticize the “educated guess” doctors have to make about length of stay. I would like to be at the bedside when one of your patients asks you, “Hey doc, how long do you think I’ll be in the hospital?” Because your tone suggests your answer will be, “What do you think I am, a fortune teller with a crystal ball. Just stay in this bed, take your medicines and shut up.” That is all CMS is asking; make an educated estimate and back it up with good documentation, How hard is that???

    • Burke Kealey
      Burke Kealey September 10, 2014 at 10:15 am - Reply

      Hi Dr Hirsch,

      In some cases it is indeed less costly for the patient, but in many cases it is more expensive. There are a lot of variables and a lot of scenarios. I believe in observation status, but believe it should be used for those cases in the ED requiring extended true observation for 6-8 hours before going home. As to the accuracy of predictions, I know that a good experienced hospitalist is accurate about 60-80% of the time depending on the diagnosis, and CMS, as you point out, doesn’t expect perfection. My beef is that for all the swirl and built up infrastructure around trying to make this even more accurate, switching of status back and forth, not to mention the wedge that it drives between the doctor and the patient, who are both worried and confused around the implications, it simply is not worth it. Simplify the system is my motto.

  3. Casey Quinlan September 10, 2014 at 12:41 pm - Reply

    I LOVE this. Here’s an ancillary idea: let’s work to disseminate this message across the patient/family/caregiver communities, to drive some collaboration by educating the public about “obs status” and its impact on both patients and providers.

    When doctors and patients team up, amazing things happen. Just as the Society for Participatory Medicine =)

    [Full disclosure: I produce The Hospitalist Magazine’s podcast series, and am a member of the Society for Participatory Medicine.]

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About the Author:

Burke Kealey
Burke Kealey, MD, SFHM is the Senior Medical Director for Hospital Specialties at HealthPartners Medical Group in Bloomington, Minnesota. Dr. Kealey began his career as a hospitalist in 1995 and has worked in medical leadership since 2000. In 2003 he was awarded SHM’s Award for Clinical Excellence. He has Chaired SHM’s Practice Analysis Committee and helped produce several of SHM’s Compensation and Productivity surveys. Dr. Kealey is a past president of SHM’s board of directors and has served as secretary and treasurer in past terms. Dr. Kealey has a strong interest in ensuring that hospital medicine practices are effectively managed with a strong focus on the triple aim of affordability, great experience, and best health for our patients. Raised in Texas, Dr. Kealey received his undergraduate degree from Texas A&M University, his medical degree from the University of Texas at Houston, and then moved north for Internal Medicine training at the University of Minnesota Hospitals and Clinics. While in chief residency he met his lovely wife Samantha, a Minnesota native and current Emergency Medicine physician. Together, they have 4 children.


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