Study: Hospitals lose money on observation care

Although many hospitals are placing Medicare patients into observation care out of fear of attracting Medicare recovery auditors (RAC), they actually are losing money on the practice, according to research in the Journal of the American Medical Association.

A new study published online examined nearly 44,000 hospital stays at the University of Wisconsin Hospital and Clinics in Madison, Wis., that occurred between July 2010 and December 2011 and found of those, 10.4 percent were for observation care.

The mean length of stay was 33 hours. Hospitals generally are concerned about inpatient admissions they believe will last for less than 48 hours. Patients complaining of chest pain, abdominal pain and fainting were the most likely to receive observation care, according to the study.

Overall, UW Hospital had an average negative margin of $331 for each observation patient, or -8.7 percent, compared to a positive margin of $2,163, or 10.9 percent, for each inpatient admission.

Observation patients also were less likely to be discharged to a skilled nursing facility--7 percent of those observed were sent to a SNF, compared to 13.7 percent of those who received inpatient care. Medicare generally will not cover a SNF stay unless the enrollee was previously admitted as a hospital inpatient.

"Although reducing erroneous Medicare billings is important, our findings suggest that many aspects of observation status and reimbursement should be reevaluated," wrote the study's authors, clinicians at the University of Wisconsin.

The study comes as hospitals continue to complain to Congress that RACs have been overreaching in their audits, and have asked for revisions in the observation care rules as a result.

To learn more:
- read the JAMA article

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