Watch and Earn

The Hospitalist. 2008 April;2008(04):

April 1, 2008|The Hospitalist

With recent changes in Medicare rules making reimbursement even trickier for patients who aren’t well enough to be sent home quickly but aren’t sick enough to move to an inpatient bed, hospitalists are increasingly being tapped to set up observation units at medical centers around the country.

These patients, experts say, are the ones hospitals are most likely to lose money on. That’s because the Centers for Medicare and Medicaid Services (CMS) won’t pay unless a patient meets stringent guidelines for admission to the hospital. And while recently rewritten rules allow payment for 24 hours of observation, they also can also lead to denial of claims when patients aren’t considered sick enough to have been admitted.

We want our emergency department physicians to be able to focus on life-or-death issues and on the stabilization of very sick patients. These are things that ED physicians do spectacularly well. But when it gets down to management and reassessment of patients over time, we wanted a dedicated staff of hospitalists who were trained in internal medicine.

—Jason Napolitano, MD, medical director of the observation unit, University of California at Los Angeles Medical Center

When they’re well run, observation units can even help cover losses from emergency departments (ED) that have trouble collecting on bills because most of their patient population is uninsured or underinsured.

But the drive to create observation units isn’t just about money, says Frank W. Peacock, MD, vice chair of the emergency department at the Cleveland Clinic in Ohio. Studies have shown that death rates drop when hospitals add observation units, Dr. Peacock says.

Despite these clear benefits, experts estimate that a mere 20% of medical centers around the nation have observation units.

This may in part be because creating such a unit—also known as clinical decision unit—takes a lot of planning to start up, says William T. Ford, MD, medical director for Nashville, Tenn.-based Cogent Healthcare and chief of the section of hospital medicine at Temple University in Philadelphia. Without proper planning, observation units can fail to flourish—or just fail.

That’s what happened at Temple, Dr. Ford says. “The original observation unit got bogged down in its own infrastructure,” he explains. “It wasn’t cost effective.”

After that first attempt failed, Temple reached out to Cogent and Dr. Ford for help in developing an observation unit that would be financially viable.

The Economics

The price of not having an observation unit isn’t always obvious, experts say.

One place where hospitals without the units lose money is related to the way Medicare calculates reimbursements, says Sandra Sieck, a healthcare reform analyst at Sieck Healthcare Consulting in Mobile, Ala.

Medicare is always keeping track of how your patients are, Sieck says. If its analysts don’t think the patient was sick enough to be admitted to the hospital, you may not get reimbursed for the stay.

And even if Medicare agrees that the patient needed more than just an ED visit and pays the bills, the rate at which your institution gets reimbursed may drop if it’s determined that your patients are ones who could have been treated in an observation unit and then released after 24 hours.

So, Sieck says, even when you’re getting paid, there may be a long term—and more general—impact.

“When someone who is not very sick is put in with your patient mix, it drags down the aggregate,” she explains. “And that affects the base rate set by Medicare.”

How does Medicare determine how sick your patients are?

“They look at the documentation in the patient’s chart,” Sieck says. “For example, you might have a patient with a full-blown heart attack who had to go to the cath lab and then had two stents put in and then developed heart failure. And then if this patient has co-morbidities, such as diabetes, that will show up.”

Compare this to the patient who comes in with chest pain and then turns out only to have a gastrointestinal problem, Sieck says.

If both those patients are in the mix, that’s going to drag the average down, she adds.—LC