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The Latest: Do Observation Stays Account for the Drop in Preventable Readmissions?

Posted on March 08, 2016   |   
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In late 2015, the Wall Street Journal published an article identifying an increase in hospital observation stays coinciding with a reduction in readmissions. It was possible, the authors noted, that the celebrated decline in 30-day readmissions was due in large part to hospitals simply changing the labels they assigned to patients. Observation status allows hospitals to provide care for patients who fall in a gray area between self-sufficiency and the need for inpatient care; however, it is recognized as an outpatient service. Therefore, because a patient is not admitted to the facility, that stay is not considered an admission – or a readmission.

This finding was understandably disconcerting to a healthcare community acutely focused on reducing 30-day readmissions through a variety of refined care coordination and quality improvement initiatives. If the data and interpretations were accurate, the efforts of these stakeholders could be interpreted as ineffective in improving health outcomes for their patients.

A more granular analysis published recently in the New England Journal of Medicine (NEJM) clarifies these assertions. First, the study acknowledges that observation status totals gradually increased throughout the studied period from late 2007 to early 2015. Of note, however, is the fact that the Centers for Medicare & Medicaid Services’ Hospital Readmissions Reduction Program (HRRP) was not implemented until FY 2013; therefore, this steady increase began three years before the advent of HRRP readmissions penalties. In addition, when the researchers looked at data within hospitals, they did not identify a relationship between the increase in observation status and the decrease in readmissions; that is, they did not find evidence that the two were related. Instead, these changes occurred simultaneously but without a significant relationship to one another.

hospital curtain

While the NEJM researchers are unable to establish a causal relationship between readmissions reductions efforts and the decline in numbers, they did note two important findings. First, rates of decrease for all readmissions increased after the passage of the Affordable Care Act (ACA) in 2010. Interestingly, the rates of readmission decreased most substantially after that date for those conditions that were included in the first years of HRRP under the ACA: acute myocardial infarction, heart failure, and pneumonia, suggesting that these changes might be due at least in part to intentionally readmissions reductions efforts in these areas.*

*This analysis did not include readmissions for an index diagnosis for COPD given that CMS enacted penalties for excessive COPD index admissions after the time frame included in this analysis.

Read the Wall Street Journal's December 2015 analysis here and the NEJM article here.

What are your thoughts on these latest findings? Share your thoughts in the PRAXIS discussion group and on Twitter!


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  • This is very similar to our HI drop in asthma hospitalizations that "coincided" nicely with huge increase in observation status of asthmatic patients. It didn't improve patient care and the hospitals didn't want to talk about it or have anyone ask questions.
  • The only problem with this observation status is my insurance will not cover it.

    • The other problems are that it masks that care if COPD patients is NOT improving and it limits the options for patients after they are released from "observation."

      For example, if a person is hospitalized for a specified duration (eg 3 days), they have a much wider range of discharge options from nursing home care to various other assisted situations that are covered which are NOT covered if released from mere "observation."

      This is one way for medical centers to hide the extent of the readmissions vicious cycle, with the patients paying and losing.
  • What's positive is that in this analysis of Medicare data the observation status increase was unrelated to the readmissions decrease, which is comforting for those who are putting so much work into improving care for patients. That said, we don't know beyond anecdotal evidence if this decrease in readmissions is associated with improved patient outcomes, which should be the optimal goal of all stakeholders.
    • call me a sceptic, but no connection between the increase in observation and fall in readmissions, seems rather "convenient" to me and more "creative coding" than improvement in patient care.

      There need to be system-wide improvements in how patient care is coordinated, especially when patients have exacerbations and are returned to home care or nonhospital care. These changes are taking time and cost money.

      Part of the problem is that so many patients have very little support in their communities--housing, nutrition, money for Rx, access to healthcare providers. For some, the easiest thing to do if they run out of Rx or have a flare is to go to the ER where they will get some Rx and care and then go home. Rinse and repeat.

      Until they have more resources devoted to helping them get more resources away from hospital setting, I don't see this cycle changing, nor do the administrators I've spoken with.

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