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To Admit or Observe: THAT Is the Question. Suzanne K. Powell, RN, MBA, CCM, CPHQ Health Services Advisory Group. Objectives. Identify why Observation versus Inpatient is a national concern. Define OBSERVATION (OBV). Determine the appropriate use of OBV vs. INPATIENT hospital admissions.

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To admit or observe that is the question l.jpg

To Admit or Observe: THAT Is the Question

Suzanne K. Powell, RN, MBA, CCM, CPHQ

Health Services Advisory Group

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  • Identify why Observation versus Inpatient is a national concern.


  • Determine the appropriate use of OBV vs. INPATIENT hospital admissions.

  • Identify a proven method to reduce unnecessary admissions using a case management protocol.

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CMS Concerns

  • CMS paid $19.9 billion in error for Medicare fee-for-service claims.*

  • 17.2% were due to medically unnecessary services.*

  • 43.7% were due to insufficient documentation.*

  • 41% of admission errors were associated with one-day stays that were billed as inpatient.

    • DRG 143 is one of the most common billing errors.

      Because the payment error rates are increasing, there may be more auditing in the future.

      * Improper Medicare FFS Payments Report FY 2004, Rev. 2/15/05,

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Arizona Concerns

  • In FY 2005 over 4,500claims were submitted for DRG 143 (chest pain) in Arizona:

    • One-day stays accounted for 52% of the claims.

    • Of those one-day-stay claims, InterQual (IQ) admission criteria were applied to a random sample and 93.5% failed.

    • Of those same claims, a further sample of DRG 143 was requested of the hospitals with the highest number of claims.

      • 97% failed to meet IQ admission criteria.

    • Since each inappropriate admission cost $2,376, Medicare overpaid $5,393,520 for these admissions.

  • Arizona is #2 in the nation for one-day-stay claims (only one state has more than AZ).

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Hospitals Concerns

SO . . .

Start improving your processes NOW ―

Avoid the CMS RUSH

to audit, and potentially deny, payment for unnecessary hospitalizations!

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Now What?

  • Do we have a problem?

    YES. One-day stays for chest pain (DRG 143) in Arizona are high.

  • What can we do?

    (1) Case Management Protocol (or a ‘variation on a theme’)

    (2) Use OBV status as a default for DRGs with high error rates (DRG 143)

  • How will we know if what we are doing is effective?

    Monthly audits / run charts to track progress

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Why all the confusion over OBV?

  • Misunderstanding of the roles of physicians and facilities in determining patient status.

  • Confusion over the Medicare rules for appropriate selection of status.

  • Distinction between inpatient and extended outpatient observation is blurry.

  • It is difficult to correct admission errors “after-the-fact” (i.e., after discharge).

  • Difficult to convince clinicians that the difference is one of BILLING, not MEDICAL TREATMENT.

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Definition: Observation Services

CMS Manual System, Pub. 100-02 Medicare Benefit Policy says …

Observation care is a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital.

(up to 48 hours for Medicare FFS beneficiaries)

***Note that managed Medicare and private insurance companies’ admission status rules may vary from those of FFS Medicare (often 23 hours or 24 hours).

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Purpose of Observation

Observation is used to evaluate a patient’s condition in order to determine the need for acute inpatient admission.

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Advantages of Observation

  • Allows the physician to observe the patient when unsure of diagnosis or trajectory of current symptoms

  • Avoids potentially unnecessary acute care admission and costs

  • Decreases burden on ED and augments hospital reimbursement (does not alter physician reimbursement)

  • Does not preclude an eventual admission

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Observation ServicesKEY Questions to ASK

  • In what condition will the patient most likely be tomorrow?

    “Better” =  Observation

  • Is it risky to send the patient home today?

    “Yes” =  Observation

  • Is it likely I will know whether to admit or send the patient home by tomorrow?

    “Yes” =  Observation

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Observation ServicesKEY Questions to ASK

  • Are vital signs stable?

    “Yes” =  Observation

  • Will a diagnosis likely be made in 24 hours?

    “Yes” =  Observation

  • Will treatment, such as IV fluids, require standard monitoring and be complete within 24 hours?

    “Yes” =  Observation

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Observation ServicesKEY Questions to ASK

  • Is the patient presenting with a symptom(s) (e.g., chest pain, abdominal pain, TIA)

    “Yes” =  Observation

  • Is the patient having an unusually long recovery period following outpatient procedure (e.g., pain management issues, cardiopulmonary concerns, urinary retention)

    “Yes” =  Observation

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Do NOT use OBV for….

  • Social reasons

  • Physician or patient convenience

  • Routine prep for diagnostic testing

  • Routine recovery from outpatient procedures

  • Procedures designated as “inpatient only”

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OBSERVATION: The RULEIt’s Elementary!

R/ORule Out


R/ORemember Observation

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Will my patients get second-class care? NO!And, by the way, my hospital does NOT have an OBV Unit…

  • Observation services can be provided anywhere in the hospital

    • Example: Continuous monitoring (such as telemetry) can be provided in observation or inpatient status; consider overall severity of illness and intensity of services in determining admission status rather than any single or specific intervention.

  • Level of care, not physical location of the bed, dictates admission status.

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  • Observation time begins at the documented time in the patient’s medical record that coincides with the time the patient is placed in a bed for the purpose of initiating observation.

  • Must be in accordance with a physician’s order / nursing note; computer time may be inaccurate

  • Round out to the nearest hour.

  • FFS Medicare coverage for observation services requires at least 8 hours of monitoring and is limited to no more than 48 hours unless the fiscal intermediary grants an exception.

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WHEN does the OBV “CLOCK” END?

  • The ending time for observation occurs when:

    • The patient is discharged from the hospital, OR

    • The patient is admitted as an inpatient.

  • The time when a patient is “discharged” from observation status is the clock time when all clinical or medical interventions have been completed, including any necessary follow-up care.

  • Observation care does not include time in the hospital subsequent to the conclusion of medical interventions (e.g., time waiting for a ride home).

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Can I change from OBV to Inpatient?


OBV-to-Inpatient An outpatient observation patient may be progressed to inpatient status when it is determined the patient’s condition requires an inpatient level of care―anytime up to 48 hours (for FFS Medicare patients).

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Can I change from Inpatient to OBV?


Inpatient-to-OBV(CODE 44): Hospitals can convert and bill an inpatient case as an outpatient if the hospital utilization review committee determines before the patient is discharged and prior to submitting a bill/claim that this setting would have been more appropriate. The patient’s physician must concur with the decision of the review committee, and the physician’s concurrence and status change must be documented in the medical record.

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Considerations when making OBS/Inpatient adjustments

  • Only use information available to the physician AT THE TIME of the decision to admit to OBV or inpatient. Patient Safety is number #1 criterion:

    • Medical necessityfor admission must be met and documented at the time of conversion.

    • Physicians canonlychange admission status prior to discharge.

    • Any change in admission status must be supported by the medical record (physician notes and orders).

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Documentation is Critical

Observation status MUST be specifically stated in the order

  • Documentation must support the level of care provided (inpatient admission versus OBV):

    • An order simply documented as “admit” will be treated as an inpatient admission.

    • A clearly-worded order will ensure appropriate patient care and prevent hospital billing errors. Some use:

      • “admit to observation” or

      • “place patient in outpatient observation”

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Once the patient has been in OBV status for 24 hours . . .

Document the answers to these questions:

  • Is there a need to continue observation status for the next 12–24 hours?


  • Is there a need to convert to inpatient status?

    • It is important to document the medical necessity for admission status.


  • Is the patient medically stable for discharge?

    • Document the plan for follow-up as needed.

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Medicare Observation or Inpatient?Admission Decision Test

Observation is appropriate.


Can condition be

evaluated / treated / improved

within 48 hours?

Inpatient admission is appropriate.



Does condition

require hospital


Alternate level of care is appropriate


Additional time is needed to determine if inpatient admission is medically necessary. Observation is appropriate.


* The decision to admit a patient as an inpatient requires complex medical judgment, including consideration of the patient’s medical history and current medical needs, the medical predictability of something adverse happening to the patient, and the availability of diagnostic services/procedures when and where the patient presents.

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Case Management ProtocolAn Answer to the Observation Conundrum

Physician admits patient to the Observation CM/UM Protocol

Case Manager/Utilization Manager assessment

Determine appropriate status of patient (Inpatient vs. Outpatient)

Ordering Physician abides by case management determination

Protocol for all patients, regardless of payer (but only send HSAG Medicare FFS charts)

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for all patients regardless of payor source?

Admission Per Case Management Protocol – Part 1

Physician Order “Admit patient per Case Management/Utilization Management Protocol”



at the discretion of the individual





Patient admitted to Protocol

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Dept. and/or Business

Office has “hold status” (2-6 hr timeframe) for patient until inpatient or observation status are determined by CM/UM personnel


CM/UM personnel assess patient admitted per protocol in 2-6 hrs


Default to observation status

CM/UM personnel assess patient admitted per protocol


Admission Per Case Management Protocol – Part 2

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Case Management personnel assigns patient to appropriate status. Decision binding and upheld by the physician writing the order

Admitted as “Inpatient” using hospital admission criteria

CM/UM Decision


Assigned as “Observation status”

CM/UM continuous assessment


Physician notified, & assesses

Discharged after evaluation and/or treatment within 24-48 hrs after placed in observation status

Patient subsequently meets criteria for conversion to inpatient status within 24-48 hrs.

Admission Per Case Management Protocol – Part 3

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CHEST PAIN Considerations status.

  • Inpatient admission: consider when a patient has:

    • Elevated Troponin

    • ST elevation

    • MI or dynamic ST-T wave changes on the EKG

    • Hemodynamic instability

    • Chest pain not responding to Nitroglycerin

  • Observation: consider when the patient has no EKG or enzyme changes, but the patient’s story suggests the possibility of acute cardiac ischemia

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TEST ~ Case Study #1 status.

  • 67-year-old seen in the ED with gradual onset of CP over past 2 hours

  • EKG normal

  • First set of cardiac enzymes showed increased Troponin level

     Observation OR Inpatient

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TEST ~ Case Study #2 status.

  • 66-year-old seen in the ED with CP

  • EKG slight ST elevation

  • First set of cardiac enzymes negative

     Observation OR Inpatient

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TEST ~ Case Study #3 status.

  • 74-year-old man presented to his doctor with chest pain “off and on” for a week.

    • Patient was found to be bradycardic in the 50s

    • No syncope

    • Medications included toprol

  • Sent to ED: VS stable, BP 180/70, HR of 50/min. EKG sinus bradycardia. Enzymes normal. Chest pain description in the chart did not support a diagnosis of unstable angina. Bradycardia is explained by the medications

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Correct Call? status. DRG 143 Case Study #4

  • 67-year-old male, history of palpitations for 2 months, usually at rest in evening before bed, was admitted for cardiac monitoring and enzymes related to complaint of chest pain and palpitations. Physical exam was unremarkable. Cardiac enzymes were negative. ECG showed sinus rhythm with occasional PVCs. Discharge diagnoses were unspecified chest pain and PVCs.

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Correct Call? status. DRG 143 Case Study #5

  • 84-year-old man, history of CABG, was admitted with atypical chest pain for a week, which increased on deep inspiration. Enzymes and ECG unremarkable. Also complaining of weight loss over 3-year period. MI was ruled out. Also had work-up for weight loss while in the hospital. Discharge diagnoses were unspecified chest pain and weight loss.

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Correct Call? status. DRG 143 Case Study #6

  • 63-year-old woman, history of CAD, HTN, CVA, with prior MI in the 1970s, was admitted with chest pain described as sharp, retrosternal, with dyspnea and diaphoresis occurring at rest. Pain lasted for minutes, increasing with exertion and decreasing with rest. Pain started day before and has recurred several times. BP 140/80. Initial ECG showed minor non-diagnostic ST-T-wave changes. The hospital admitted to rule out MI. Serial cardiac workup negative. Stress perfusion study negative for ischemia. Discharged with diagnosis of chest pain. GI work-up planned as outpatient.

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Contact Information status.

Suzanne K. Powell, RN, MBA, CCM, CPHQ

Director, Acute Care/QI Program


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All status.  Medicare beneficiaries have the right to appeal their discharge from a hospital, skilled nursing facility, home health agency, or comprehensive outpatient rehabilitation facility. For more information, go to call 1.800.359.9909.

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This material was prepared by Health Services Advisory Group, the Medicare Quality Improvement Organization for Arizona, under contract with the Centers for Medicare & Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services. The contents presented do not necessarily reflect CMS policy. Publication No. AZ-8SOW-SS-120106-01