Tracking Patients in Observation Status is the Wrong Metric to Track

Medlearn Media NPOS Non-patient outcome spending

Observation status should be used until obtaining a diagnosis and treatment plan.

C-Suites scrutinize utilization management programs when the observation metric increases. Investopedia defines metrics as “measures of quantitative assessment commonly used for assessing, comparing, and tracking performance or production.” Wayne Erickson believes a metric’s characteristics are:

  • Strategic representing an endpoint
  • Simple and understandable
  • Owned by an accountable team
  • Actionable with clear interventions to improve
  • Timely
  • Referenceable
  • Accurate as poor data creates untrustworthy performance metrics
  • Correlated to their influence on desired behaviors or outcomes they want
  • Game-proof
  • Aligned
  • Standardized
  • Relevant

Utilization review can provide a valid observation rate using Medicare’s consistent definition. To avoid any ambiguity, Medicare acknowledges the superiority of the treating physician’s acumen, developed an Inpatient only list, avoided an approved guideline, recognized that status should be determined at presentation, and intentionally defined observation as less than two midnights of necessary medical care. We keep Medicare issues <5 percent as tracked by code 44s or self-denials tracking the conversion from inpatient to observation status. As Dr. Ronald Hirsch notes, “Why does conversion from inpatient to observation be seen as an error? The ultimate goal is to get the right patient into the right status. A true rate would include these conversions and regular observation patients. This rate should increase as healthcare improves and more care is transitioned to the outpatient arena.

Regretfully, Medicare Advantage and commercial insurers manipulate the observation metric invalidating it by creating a definition that is not:

  • simple or understandable (ambiguous inconsistent rules)
  • timely (audits years later)
  • referenceable (as hidden by proprietary claims and manipulated unilaterally)
  • game proof
  • standardized.

Insurers will use: national guidelines or intensity of care days into an admission, variable “accepted” Observation times up to 48 or 72 hours if not longer “quoting intensity of care,” proprietary guidelines that aren’t released or buried in a guidebook, and unilaterally changed guidebooks without disclosing changes. To further control the “game,” insurers are purchasing practitioners or companies that used to produce unbiased guidelines.

Tiffany Ferguson wrote, “What is the outcome we are trying to achieve in the measure and the benchmark (for observation)?  Why is it important? Are moving too many patients through the observation unit or is it impacting cash.” She further proposes that one “separate the data by payer, common diagnosis, and physicians” and review it periodically to define the need to educate your providers, have conversations with your insurers, or determine if your appeal team is “taking the path of least resistance to agree to observation with the payers and avoid conflict.”

Observation status should be used until obtaining a diagnosis and treatment plan. If the patient fits acumen/criteria (ICG®, MCG®), requires multiple consultants and the treatment plan at presentation may exceed 2 MN, one should use Inpatient status. As no national standard exists, one can define their facilities’ true Observation rate independent of insurer bias. One should track observation rates by an insurer before and after an appeal to identify potential unacceptable trends to intervene promptly. One needs to look to their contracts if the observation census and denials of inpatient status are climbing without validation. If one wants to see a paradigm shift, Medicare could ease the hospital’s ability to appeal outside the insurer regardless of the contract, allow the hospital to become the patient’s advocate, or recognize that the insurers’ control of status impacts patient care making them liable for denials.


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