The Role of the Physician Advisor in the Observation Rate Conversation

by | Apr 16, 2019 | Blog

By Jerilyn Morrissey, MD

Twenty years ago, few hospitals thought of using a physician as a regular resource for utilization review purposes. My colleagues, Drs. Corrato, Zebrowitz, and McCarter introduced the Physician Advisor role to the industry in the early 2000s. Moreover, as clinical issues have gained greater prominence in revenue cycle management, many facilities have added Physician Advisors to support their utilization management teams.

As a Physician Advisor, I lost track of the number of times I was summoned to a meeting to address concerns about a facility’s Observation rate. Most commonly the Observation rate was defined as the number of Observation stays divided by the total number of stays (Inpatient and Observation stays). Despite the lack of a national benchmark on observation rates as a function of all admissions, the conversation would always focus on how the number was too high. As we debated what an acceptable Observation rate should be, we would invariably proceed to a conversation about the rate of conversion from Observation to Inpatient status and whether that number was too high or too low compared to… oh yeah, there is no national standard here either.

Stop the Madness

So, before you are called to the next meeting to fix an Observation rate, let’s take a few minutes and understand what Observation is and when it should be used.  Observation is an outpatient designation added to the Medicare Benefit Policy Manual a long time ago (circa 2004 in Transmittal 19) to give providers time to decide whether a patient should be admitted to the hospital as in inpatient or discharged home. Initially, CMS expected that the decision to admit the patient would be made in less than 48 hours, usually in less than 24 hours.

Remaining entirely consistent with that definition, in 2013 CMS introduced the Two-Midnight Rule where it stated that if a patient is expected to need hospital care that crosses at least 2 midnights, they are generally appropriate for Inpatient status. Do you see a trend here? CMS further told us that “in only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours.”

Comparing Apples and Oranges

So, what if we looked at this metric differently? If we use the definition of Observation, then it seems to me that patients in Observation for less than 2 midnights are the most appropriate patients for Observation. Then, why not focus on what I call the “long stay” Observation rate, the number of Observation cases with stays greater than 2 midnights over the total number of cases (Inpatient or Observation) with greater than 2 midnights. By contrast to the “traditional” Observation rate, the “long stay” Observation rate should be less than 5%  because long Observation cases should be “rare and exceptional cases.” As a side note, this approach is consistent with how the Office of the Inspector General reviewed hospitals’ implementation of Two-Midnight Rule in their report: Vulnerabilities Remain Under Medicare’s 2-Midnight Hospital Policy.

Hot Topic

With never-ending pressure on healthcare to do more with less, the Observation rate conversation will remain a hot topic for many years to come. So, the next time you are asked to address your Observation rate make sure you know what’s in the numerator and what’s in the denominator so that you are comparing apples to apples and helping your facility achieve its financial goals. 

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