Emergency department observation units offer efficiencies that cut costs, improve care

Emergency departments are increasingly becoming overcrowded with more complex patients, putting greater pressure on staff to admit or discharge patients, with less time for clinical observation and decisionmaking.

The admission decision is one of the single most costly decisions made in the emergency department on a daily basis. In the Patient Protection and Affordable Care Act era, hospitals are increasingly focusing on cost and quality outcomes for inpatients. Meanwhile, initiatives by the CMS (like recovery audit contractors and the more recent two-midnight rule) have created costly admission utilization-review processes, and likely have contributed to an escalation in admitting patients to observation status.

Between 2001 and 2009, there was a four-fold increase in observation. In 2009, observation admissions accounted for 2% of all emergency department patients and represented more than 12% of all hospital admissions.

Between 2007 and 2009 alone, there was a 36% increase in admissions to observation status. At the same time, there was a decline in inpatient admissions and an increase in the length of stay for observation-status patients as those admissions increasingly substitute for inpatient admissions. This increased use of observation status is likely largely a reaction to the dynamic reimbursement environment. Nonetheless, more efficient and effective management of the observation-status patient can have a significant effect on hospital operations as well as costs.

Emergency department observation units are designed to allow for coordinated, structured and high-quality care for select observation diagnoses. Such units have demonstrated improved outcomes while also reducing resource utilization through shorter hospital stays and greater care coordination. Some 80% of academic medical centers and one-third of all hospitals now have observation units. The majority are under the administrative control of the ED.

The most common observation diagnoses are (in descending order): chest pain, abdominal pain, syncope, cardiac dysrhythmias, mood disorders, skin and soft tissue infections and congestive heart failure. Studies of ED-run observation units for various clinical conditions demonstrate shorter lengths of stay, fewer inappropriate ED discharges, fewer adverse outcomes and lower readmission rates. With an estimated 30% of observation-status admissions amenable to emergency department observation unit admission, a significant number of patients may be effectively served in this setting. In our institution, as has been demonstrated nationally, we have been able to improve outcomes, while cutting lengths of stay in half and maintaining a record of excellent patient satisfaction.

Recent literature suggests that full implementation of ED observation units could save $4.6 million a year per hospital and $3 billion per year nationally. Placing such patients under the care of a group of healthcare professionals who are present 24/7, who have experience working with multidisciplinary protocols, and are closely in tune with hospital operational flow allows for the greater efficiency and lower costs associated with these shorter lengths of stay.

Such efficiency gains may allow hospitals to reduce costs as hospital admission rates and utilization decline in an increasingly capitated environment.

Additionally, it is widely recognized that inpatient management of many of these conditions that could otherwise be cared for in an ED observation unit is not profitable for the institution. Studies have shown that observation units, with their lower lengths of stay and lower variable costs, can actually be profitable for these same diagnoses. These efficiency gains also free up staff and hospital resources to focus on more complex, more profitable service lines, as well as other strategic priorities, while also giving attention to improving outcomes in this patient population. This often results in the dual benefit of making some loss-leader admissions profitable while filling vacated inpatient beds with more profitable admissions.

Much of the quality outcomes reporting, value-based purchasing, and readmission-reduction incentives associated with the ACA have focused hospital planners on the management of inpatients. However, the industry would be remiss if we didn't also focus on the increasingly prevalent group of observation status admissions; the efficient and effective management of this patient population is inextricably linked to resource availability and institutional profitability. The ED observation unit should be increasingly recognized as a core strategic component in the management of many of these observation patients.