The best data available on Medicare beneficiary out-of-pocket expenses arise from a 2013 report from the Office of the Inspector General, which shows that the patient expense for an observation stay was less than the expense for a short inpatient stay 94 percent of the time.5 Additionally, the percentage of patients caught in the scenario where they were hospitalized for three or more nights but didn’t have three inpatient overnights (ie, start in observation, then transition to inpatient for a couple more days) and needed subsequent skilled nursing facility care that Medicare did not pay for was 0.6 percent of all observation visits.5 In the lay press, stories from this small fraction of visits make for very compelling news, and as a result, the headlines featuring these visits highlight a real but exceedingly rare consequence of observation care.6
In conclusion, Medicare’s shift to a bundled facility payment this year creates an incentive to use evidence-based protocols for observation care while also effectively capping the patient out-of-pocket costs for observation facility charges. The new rule still does not address previous patient financial issues, such as shifting the burden of self-administered medications onto patients (or providers) or the lack of time counting toward a skilled nursing facility benefit for nights spent in the hospital while in observation status. However, this new rule helps to clarify and cap the patient expense for an observation visit, a seemingly positive development in observation care.
Dr. Baugh is the medical director of emergency department operations at Brigham and Women’s Hospital in Boston and chairs the ACEP Observation Medicine Section.
Dr. Granovsky is president of LogixHealth, a national ED coding and billing company, as well as chair of the ACEP Reimbursement Committee.
- Hospital outpatient prospective payment—final rule with comment period and final CY2016 payment rates. Centers for Medicare & Medicaid Services Web site. Accessed Dec. 29, 2015.
- Ross MA, Compton S, Medado P, et al. An emergency department diagnostic protocol for patients with transient ischemic attack: a randomized controlled trial. Ann Emerg Med. 2007;50(2):109-119.
- Pena M, Fox J, Southall A. Effect on efficiency and cost-effectiveness when an observation unit is managed as a closed unit vs an open unit. Am J Emerg Med. 2013;31:1042-1046.
- Baugh CW, Venkatesh AK, Bohan JS. Emergency department observation units: a clinical and financial benefit for hospitals. Health Care Manage Rev. 2011;36(1):28-37.
- Hospitals‘ use of observation stays and short inpatient stays for Medicare beneficiaries, OEI-02-12-00040[PDF]. Office of the Inspector General Web site. Accessed Feb. 12, 2016.
- Span P. In the hospital, but not really a patient. The New York Times. Accessed Oct. 21, 2015.