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What is an Observation Stay in a hospital?

  Many of you know that under the Affordable Care Act, hospitals will be penalized for having too high a rate of re-admissions. Hospital systems have responded with several initiatives to reduce readmissions. One of these is establishing Transitions of Care, currently being piloted at PHCS and RWJ Medical Centers with grants from the RWJ Foundation. This program connects people being discharged with certain diagnoses to a Transitions counselor who will meet with them both in the hospital and once they return home to ensure that they understand and follow the doctor’s orders and medication regimen.

Hospitals are also trying to reduce negative outcomes and readmissions by reducing hospital-acquired infections. If you have taken a tour of the new PHCS or Capitol Health medical centers, you may have noticed how much emphasis was put on various technologies and practices for reducing transmission, such as hand-washing stations and special fabrics. You may also notice more use of masks by staff.

But I am concerned about one practice that I heard about last year. This involves placing a person on “observation stay” rather than admitting them to the hospital. Initially my concern was that a person who had been hospitalized for one condition (such as an infection) would be more likely to be put on observation if returning for either that condition or something unrelated (such as a fall/hip fracture). There are several implications of observation status, including:

The hospital stay may not be covered by Medicare A. Medicare B only pays 80% and has no cap, thus potentially higher costs for the patient who does not have supplemental insurance.
Supplemental insurance rates will increase if they shoulder more of this cost.
A person must have a 3 night admission for Medicare to pay for Rehabilitation or Skilled Nursing Facility care to regain strength and capacity after the hospitalization (otherwise the cost is fully on the patient).

Observation stays were intended for situations where it is unclear whether a person should be admitted, and should be for less than 24 hours. Medicare is looking at claims more closely and trying to ensure that admissions meet their criteria. Hospitals are also being more cautious, as they will not get paid for improper admissions.

In the last 2-3 months, I have seen a sudden increase in the number of people who are reporting to me that they were put on observational status. Neither they nor their physicians were aware of these implications. I would like to hear your experience and verify my understanding of this situation. If you are faced with this situation, make sure you understand your status and what it means for you.

To read more, search “observation stay” on the internet; there are reports by Medicare(CMS) and Wall St. Journal.


On a related note, Medicare is also exploring reducing costs with a program called Patient Centered Medical Home Care. It is a team-based health care model led by a physician with a strong emphasis on care coordination to improve health outcomes. Specially trained staff in the doctor’s office provide education, follow up, and help navigating the healthcare system. Medicare reimburses these practices at a higher rate which acknowledges a higher cost to the practice, while expecting that the overall cost to Medicare will be lower if there is better preventive and follow-up care. We work with some of these care coordinators and would like more of them to know about PSRC services. Please be our ambassadors if your physician is in a PCMH practice!

We will try to schedule Lunch & Learn speakers on these programs in the coming months.

Susan W. Hoskins, LCSW

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