News & Commentary

Observation Units Not Used as Dodge


Hospitals are fined when Medicare patients are readmitted to the hospital within 30 days for certain conditions, such as acute myocardial infarction, heart failure, and pneumonia. Readmission rates for those conditions fell to 17.8% in 2015 from 21.5% in 2007, according to a study published in the New England Journal of Medicine.

Good news, but what researchers were really after was whether hospitals avoided the penalties by putting returning patients into observation units rather than formally readmitting them to the hospital.

A Wall Street Journal investigation in December 2015 found that observation-stay rates increased 48% for about 3,500 short-term acute-care hospitals from 2010 to 2013, even as readmission rates dropped 9%.

Observation stays might help hospitals avoid penalties, but they make patients face cost sharing that they might not have to deal with for regular inpatient stays. Also, patients 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.

The NEJM study rebuts the Wall Street Journal report by not finding “evidence that changes in observation-unit stays accounted for the decrease in readmissions.”

Data were analyzed for Medicare bene­ficiaries at 3,387 hospitals from October 2007 through May 2015. Researchers looked at more than 7 million hospital stays for targeted conditions and more than 45 million stays for nontargeted conditions. Targeted conditions also include total hip or knee replacement and COPD, although they were not included in this study because they were added to CMS’s Readmissions Reduction Program only last year. Nontargeted conditions are everything that’s not targeted that can lead to a readmission.

Hospitals are penalized if their readmission rates are higher than expected compared with previous years. For example, 2015 penalties are based on readmissions from 2010 through 2013, the study states.

Readmission rates for both targeted and nontargeted conditions began to fall after the passage of the ACA, which tied readmissions to penalties, although targeted readmission rates declined at a steeper rate.

Researchers pointed out that there had been growing concern about readmission rates well before the ACA, and efforts to reduce those rates came from various quarters, including CMS’s Partnership for Patients.

“Within hospitals, there was no significant association between changes in observation-service use and changes in readmission rates after implementation of the ACA,” the study concludes. “For this reason, our analysis does not support the hypothesis that increases in observation stays can account in any important way for the reduction in readmissions.”

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