News & Commentary

Observations Skew Readmission Data


The ACA hospital penalties for readmission of some Medicare patients within 30 days of discharge has been hailed as a model of cost-effectiveness, saving billions while improving outcomes. The penalties began in fiscal year 2013; the collection of data to determine penalties began in 2011.

However, a Wall Street Journal investigation last month revealed that many patients return, often for days, under observation status, which does not trigger the ACA penalties. The newspaper reported that experts say observation status care typically differs little from inpatient care.

Readmission rates dropped 9% for about 3,500 short-term acute-care hospitals (or general hospitals) from 2010 to 2013, according to the Journal’s reporting. Meanwhile, follow-up observation-stay rates increased 48%.

The newspaper reported that Medicare officials have acknowledged an increase in observation stays but have asserted that declining readmission rates aren’t primarily the result of rising observation services.

Some patients have been burned, the Journal reports. They face copays with observation stays that they don’t have to deal with for regular inpatient stays. Also, those referred to a nursing home are often stuck with the bill because Medicare doesn’t pick up the tab for such a transfer after an observation stay.

Eric Coleman, MD, a geriatrician and University of Colorado professor, is one of six experts who reviewed the Journal’s methodology.

“The hospitals are responding to the incentive scheme that has been established for them,” he told the newspaper. The findings suggest that observation stays are “blurring the results of what we think we’re doing, and how effective we think we are.”

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