Observations on a $3 Billion Healthcare Solution (Part 1 of 2)

Amina Martel

Amina Martel , MD

Medical Director

Published October 31, 2012

About two years ago, the hospital I practice at approached me about creating a 24/7 Observation unit (Obs). Our hospital is a large county hospital with approximately 120,000 to 130,000 annual ED visits averaging 1,000 to 1,200 admissions per month. A key reason why we started our Obs was that our one day stays were in the upper 30% range. The problem was that the hospital was losing revenue on these one day stays as they were denied payment by Medicare because these patients did not meet Interqual criteria for acute inpatient stays. Our goal for the Obs was simple: reduce one day stays to 25% as a starting point and see where we ended up.

About one third of US hospitals currently have Observation Units and this number is sure to grow. Researchers have recently estimated that the average cost savings per patient in a facility with an Observation Unit is $1,572, the annual hospital savings is $4.6 million, and the national cost savings is $3.1 billion. The cost savings for each individual hospital can vary, but the financial gains can come from avoiding the ACA’s readmission penalties and the Observation Unit’s added reimbursements. CMS now provides a one-time payment of around $500 plus any line item that the hospital bills for observation status that lasts from 3 to 72 hours, and the $500 is revenue that hospitals often did not collect in the past.

Our Obs has 12 telemetry capable beds with a nursing ratio of 4:1. We usually treat between 20 and 26 patients per 24 hour period and average about 400 patients a month. Patients are brought to the Obs unit and discharged 24/7. It is a closed unit staffed by hospitalists without any other medical staff. The hospital wanted us to initially focus on chest pain as it was the most common diagnosis in the one day stays. Creating the process and protocol for chest pain was very labor intensive and required all stakeholders to meet once a week, including the medical director of the hospital, lead hospitalists, the CNO, nurse managers, the ED medical director and head of case management. But once we had the process in place for chest pain work ups, we were able to look at the next five top diagnosis and created protocols them as well.

We started seeing these results:
  • Chest pain protocols worked and our average LOS for chest pain is 14 hrs
  • All the other diagnosis average LOS is 16 hrs.
  • One day stays slowly decreased to 25% then 20% over the course of a year.
  • Having a closed Obs unit run by hospitalist 24/7 created efficiency
  • The Obs unit became the release valve and helped to reduce overcrowding in the ED

Then the ED asked us if we would consider taking basically any patient who looked like they would only require about 24 hours of stay. The hospital was very pleased with the results and we continued to expand our acceptable diagnosis, sometimes stretching them to the max.

We have seen a tremendous amount of pathology in the Obs and we diagnosed adrenal insufficiency, HOCM, acute cord compressions, hypopituitary and thyrotoxic hypokalemic periodic paralysis (among others). We learned that at times our hospitalist could indeed take care of these sick patients in the Obs unit and treat them aggressively enough to discharge them in less than 24 hrs, but at other times these patients would deteriorate and would have to be converted to an acute inpatient.

Looking at some of the latter patients, the hospitalist, case managers and other stakeholders agreed that both the hospitalist and case manager would have met the acute inpatient criteria. We came to the conclusion that it can be very complex to know what the benchmark was for a one day stay percentage, and when it is reasonable to bring the patients in as one day stays if they meet the Interqual criteria of severity of illness and intensity of service. Over time, we did realize that at some point we became the victims of our own success and were potentially losing revenue through the process (more on this in another post).

Overall, it has been a very rewarding experience to create an Obs amid the chaos. We began with a blank slate not knowing where to start in creating order sets and a protocol which works for our hospital. It is still a work in progress, with constant changes almost every week regarding new policies and new ways of approaching diagnosis.

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