Observation status: making the right call


Understanding when to admit a patient to observation status or to inpatient status can be confusing and challenging—and so can knowing when it's appropriate to bill for one or the other. While the decision is not so difficult when hospital case managers are available to give advice, hospitalists may find some simple rules useful when they must decide on their own.

Correct assignment to inpatient versus observation status applies principally to Medicare patients. Ordinarily, other payers including Medicaid have specific arrangements for paying an observation rate to hospitals when inpatient criteria are not met. But Medicare leaves it up to the admitting physician and then holds the hospital accountable if the wrong decision is made.

Photo by Thinkstock
Photo by Thinkstock.

So what are physicians supposed to do, according to Medicare regulations? It's actually pretty simple. If you believe the patient's condition can probably be stabilized and discharge (or a decision to admit) may occur within about 24 hours, the patient should be assigned to observation status. Otherwise, inpatient admission is usually appropriate.

Documentation of this information can be crucial in supporting your decision. By including a note in the H&P that admission for more than 24 hours is anticipated, you may save the hospital a prolonged battle with Medicare auditors trying to justify an inpatient admission.

On the other hand, if you believe that discharge is likely within 24 hours, say so and order observation status. Should the patient require a longer stay, it is a very simple matter to order an inpatient admission at that point. By contrast, changing an inappropriate inpatient admission to observation status is tedious and complicated.

In general, there are five circumstances to consider for observation status:

  • Diagnosis, treatment, stabilization and discharge are expected within 24 hours.
  • Treatment and/or procedures require no more than 24 hours to complete (weekends or other scheduling delays are not sufficient reason for inpatient admission).
  • Clinical condition is changing or improving such that a disposition decision can be made within 24 hours.
  • It is unsafe for the patient to return home or to the current care setting, and arrangements for a safe discharge setting need to be made (unavailability of lower level of care is not sufficient for inpatient admission).
  • The patient is having an uncomplicated outpatient procedure requiring extended care or observation.

Patient or family preference, demand or convenience is not sufficient justification for inpatient admission.

In summary, hospital case managers are a crucial resource for making admission decisions. Hospitalists should be familiar with Medicare criteria for inpatient versus observation status. Patients who are likely to require 24 hours or less for a disposition decision should be assigned observation status. When in doubt, admit to observation since conversion to inpatient status is a simple process.