Sending seriously ill emergency room patients to outpatient observation—already under fire for the financial pain it inflicts on Medicare patients—obviously hurts hospitals' bottom lines, since they don't collect the higher inpatient fees.
A new study from the University of Wisconsin and published last week in the Journal of the American Medical Association documents many of the patients under observation should have been admitted to the hospital because their stays exceeded the CMS criteria for short-stay observation. “Lengths of stay were typically more than 24 hours and often more than 48 hours,” the study authors found. “The hospital lost money, primarily because reimbursement for general medicine patients was inadequate to cover the costs.”
Observation is a middle ground for hospital patients who are too sick to send home, but not sick enough to admit as full-fledged inpatients. The CMS originally intended the use of outpatient observation care to be relatively rare and short, but in recent years its use has accelerated—so much that some hospitals are establishing dedicated observation units for those patients.
On average, the UW Hospital and Clinics posted a net financial loss of $331 for each observation patient, because their care is paid through Medicare's physician benefit, known as Part B, according to the study. In contrast, patients who were admitted and reimbursed through the Part A hospitalization program resulted in a net profit of $2,163.
The increasing use of observation stays for Medicare patients has come under fire from patient advocacy groups because Part B does not cover expensive rehabilitation that typically follows a hospital visit, while Part A does. That difference leaves patients responsible for thousands of dollars of rehab care out of pocket, plus prescription costs and Part B's 20% copayment.