Observation Status Utilization by Hospitalist Groups Is Increasing

Editor's Note: Listen to Dr. Smith share more of his views on the State of Hospital Medicine report.

Hospitalist groups and their stakeholders must continually adapt to evolving reimbursement models and their attendant financial foci on quality. Even in the midst of care models that rely less heavily on volume of care as a marker for reimbursement, the use of criteria by insurers to separate hospital stays into inpatient or observation status remains widespread. Hospitalist groups vary in the reimbursement model environment they work in, and different reimbursement models can drive hospitalist group behavior in different ways.

G. Randy Smith Jr., MD, MS, FRCP(Edin), SFHM

SHM’s 2016 State of Hospital Medicine Report revisits the issue of observation status utilization raised in previous surveys.1 The 2012 survey’s methodology reports admissions classified as observation status based on CPT coding.2 The 2016 survey continues the 2014 survey methodology of using discharges classified as observation status based on CPT coding, along with same-day admission and discharge reported as a third hospitalization status category. In groups serving adults only, observation discharges accounted for 21.2% of all discharges, which represents an increase from 16.1% in the 2014 survey3 and a general return to the 2012-reported percentage of 20%. If same-day admissions and discharges, many of which are likely classified as observation status, are added, then observation status use in the 2016 survey may be as high as 24% of all admissions. This represents a considerable increase from the combined 19.6% rate in 2014.

Changes in non-academic status hospitalist groups largely account for this increase. Academic hospitalist groups reported an observation status utilization rate of 15.3% of admissions in 2012 and 19.4% in 2014, with a subsequent decrease to 17.5% reported in the 2016 survey. Inclusion of same-day admission and discharge with reported observation status use also reveals a decrease from 22.8% in 2014 to 20.8% in the new survey. In contrast, non-academic hospitalist groups now report a substantial change in observation status utilization, up to 21.4% in the 2016 survey from 15.6% in 2014 and similar to the 2012 level of 20.4%. When same-day admission and discharge codes are also included, the totals for non-academic hospitalist groups also evidence an increase, to 24.3% in the new survey from 19.2% in 2014.

I postulated in 2015 that the comparative increase in observation status utilization by academic groups as compared with non-academic groups in the 2014 survey may have been associated with greater proficiency in documentation and related billing inherent in a bedside clinical workforce entirely composed of physicians who have completed postgraduate training. Other phenomena may now potentially explain the increase in observation status use we see in the 2016 survey. These include adoption of the two-midnight rule by the Centers for Medicare & Medicaid Services, use of readmission rates in hospitalist group incentive structures, sharing of cost savings between hospitalist groups and healthcare organizations mutually engaged in third-party bundled payment arrangements, or risk-avoidant strategies executed by clinicians and institutional coders perhaps in excess of their institutions’ needs for risk avoidance. For many of these events, the 2016 State of Hospital Medicine Report provides further benchmark data, in a national and regional context, to inform understanding for hospitalist groups facing challenges associated with observation status utilization.

G. Randy Smith Jr., MD, MS, FRCP(Edin), SFHM, is an assistant professor in the Division of Hospital Medicine at Northwestern University Feinberg School of Medicine in Chicago.

References

1. 2016 State of Hospital Medicine Report. Society of Hospital Medicine website. Accessed September 11, 2016.
2. 2012 State of Hospital Medicine Report. Society of Hospital Medicine website. Accessed September 11, 2016.
3. 2014 State of Hospital Medicine Report. Society of Hospital Medicine website.

   Accessed September 11, 2016.