Evidence grows of link between increased observation stays, lower readmissions

An Arizona hospital system's encouraging progress on preventable readmissions for heart failure may be largely due to its increased use of assigning patients to observation status, according to The Wall Street Journal.

A WSJ analysis of Phoenix-based Banner Health's Medicare data found a steep drop in readmissions among heart-failure patients, but also an increase in patients re-entering the system under observation status, which does not affect readmission statistics.

Readmissions after inpatient stays fell from 18.5 in 2010 to 15.6 percent in 2013 at Banner hospitals, while rates of observation stays tripled in the same period for patients previously readmitted for the same conditions. If follow-up admissions labeled as observation stays were excluded from the data, all but about one quarter of the reduction would disappear, according to the article.

Indeed, a February 2013 medical policy at the health system encouraged its doctors to use observation stays for heart failure patients "to prevent reimbursement penalties for greater-than-expected readmission rates," according to the article. While more observation stays means a cheaper bill for the federal government, it can leave the patients themselves on the hook for exorbitant amounts.

But a spokesman for Banner told the WSJ that medical decisions about when to use observation stays are based on medical factors and billing rules. The drop in readmissions was the result of focused strategic initiatives, he said. 

The trend to place patients in observation is not restricted to Banner Health; October research found that the top third of hospitals for readmission cuts between 2009 and 2014 also saw an increase in returning observation patients, particularly after the Center for Medicare & Medicaid Services implemented readmission penalties in 2012, FierceHealthcare previously reported. However, the research also found an increase in observation status for hospitals that are not at risk for financial penalties for readmissions, such as veterans' hospitals. Further analysis by the WSJ found about 10 percent of the nation's short-term acute care hospitals accounted for about half of the increase in observation stays between 2010 and 2013. Three percent of those hospitals were Banner facilities.

Observation stays are hindering hospitals in determining truly effective strategies for improving care quality, Eric Coleman, a geriatrician and University of Colorado professor, told the WSJ. "The hospitals are responding to the incentive scheme that has been established for them," he said.

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