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Study: Hospital Observation Stays Increase 25 Percent In 3 Years

The number of Medicare patients who enter the hospital for observation rose dramatically even though Medicare enrollment and hospital admissions declined slightly, according to a study by gerontologists at Brown University in Providence, R.I.

The researchers analyzed medical records and hospital claims for 29 million people in traditional Medicare from 2007 to 2009. They found that observation stays increased 25 percent to about one million in 2009.  They also found that observation patients remained in the hospital longer, with 45,000 patients in 2009 staying at least 72 hours– an 88 percent hike since 2007—and well past Medicare’s recommended 24 to 48 hours.

Because overall admissions have declined, the effect of the observation-care increase is even larger. For every 1,000 Medicare admissions in 2009, there were another 116 observation care visits, 34 percent more than in 2007.

“It would be difficult to imagine that over this three year period that the overall health status of older Medicare beneficiaries would change this much,” said Zhanlian Feng, an assistant professor at Brown’s Center for Gerontology and Health Care Research, and the lead researcher for the study, which was published Monday in the journal Health Affairs.

“Decisions about a patient’s care are best left between the patient and the doctor,” said Brian Cook, a Medicare spokesman. “We continue to closely monitor these trends to ensure that services are being properly coded, and that patients are receiving the care that they need.”

Feng said the trend is troubling because observation patients are not eligible for full Medicare benefits. They can have higher out-of-pocket costs while in the hospital because Medicare doesn’t cover routine medications and has no limits on what hospitals can charge for these drugs.  And since observation patients are not considered admitted to the hospital, they lose Medicare coverage for follow-up nursing home care.

Medicare also does not require hospitals to tell patients when they are in observation status or that they will be responsible for paying any non-covered Medicare services, a Medicare spokeswoman has said.

The Brown researchers provided additional state data to Kaiser Health News that showed the use of observation services varies widely across the country (see this chart for information about your state).  For example:

For every 1,000 Medicare hospital admissions, Maryland had a nearly four-fold increase in the yearly number of Medicare observation stays, the highest rise from 2007 to 2009, while North Dakota saw only 1 percent rise. The average length of an observation visit increased the most in Delaware, by 24 percent to 35 hours, while the average time dropped 4 percent in Nebraska to an average of 24 hours.

Although the researchers said more study is needed to identify causes for the increased use of observation care, they suggest that it could be a response to Medicare policy changes aimed at controlling costs.

Among those changes is Medicare’s expanded auditing program, which scrutinizes claims for care that was not medically necessary. If a hospital incorrectly admits a patient who should have received only observation services, Medicare demands that most hospitals refund  the inpatient payment and they receive no payment at all for that patient, said Don May, vice president for policy at the American Hospital Association.

The researchers also suggested that hospitals may be motivated to put patients in observation care since they would not be counted as a readmission if they returned to the hospital.  New Medicare rules that take effect later this year will   penalize hospitals for patients who are readmitted within 30 days.

Feng said hospitals may be holding more patients for observation to avoid auditors’ scrutiny and financial penalties.

“You want to make sure people have access to good care,” he said.  “On the other hand, I understand cost is a big issue for policymakers, but there should be a balance somewhere in the middle to minimize the impact on patients.”