Building a bridge between outpatient and inpatient services
Clinical observation units have emerged as a viable solution to pressing problems facing U.S. hospitals: capacity constraints in the emergency department, lack of inpatient beds and the movement toward greater reliance on outpatient services by the Centers for Medicare & Medicaid Services and other payers.
Patients initially coming to the ED are admitted to these units for testing and observation for a minimum of eight hours to a maximum of 48 hours. Observation units can be situated throughout the hospital and “virtual” units enable observation care at any available inpatient bed, but they are typically located within or adjacent to the ED.
“The setting is geared toward patients who require more management or attention than can be given in the traditional ED, but do not need the length or level of services provided in the inpatient setting,” says Russell Holman, M.D., senior vice president of Cogent Healthcare, a national hospitalist firm based in Irvine, Calif.
If done well, observation units can help streamline ED throughput by moving patients presenting with more complex conditions, such as decompensated congestive heart failure, into an area better suited for their treatment. “Placing one patient in the observation unit frees up about three beds in the ED,” says Sandra Sieck, R.N., president of Sieck HealthCare Consulting, Mobile, Ala.
Observation units can help avoid unnecessary and costly inpatient admissions by aggressively diagnosing and treating patients’ symptoms, allowing them to go home in a timely manner. “But, hospitals shouldn’t just look at the economic incentives,” Sieck says. “These units help improve quality and regulatory compliance.”
ED physicians frequently admit patients presenting with chest pain or other chronic conditions because of malpractice fears; if a patient is sent home too soon and something goes wrong, the blame may fall back on the physician and the hospital. However, admitting a patient to the hospital who doesn’t need to be there can result in considerable expense and use up bed space that could go to other patients.
“Observation units allow clinicians to provide care better, cheaper and faster,” says Frank Peacock, M.D., vice chief of emergency department research at the Cleveland Clinic. “It’s a no-lose situation for the hospital.” For example, even when a patient is admitted to the hospital from the observation unit—which occurs in about 25 percent of cases nationwide—length of stay is typically shorter than that of a patient admitted directly from the ED to inpatient status.
Observation care can also help hospitals increase the case-mix multiplier that helps CMS determine reimbursement for inpatient services, Peacock notes. With proper management, observation units keep healthier patients requiring shorter lengths of stays out of the hospital. As a result, the hospital’s case mix comprises sicker patients needing more intensive care. CMS will increase reimbursements to reflect care for these patients.
CMS changed its payment system to allow for reimbursement of services provided in observation units. However, the agency is keeping a close eye on how they operate. “It’s important that observation units be run as efficiently and effectively as possible,” says Larry Wellikson, M.D., CEO of the Society of Hospital Medicine, Philadelphia. “There has to be clear protocols for admitting and treating patients.”
In this foldout section, Hospitals & Health Networks looks at the business case for clinical observation units, unit design and staffing, as well as reimbursement and coding issues.
Not all patients coming to the emergency department need to be admitted to the hospital. And not all should go home right away. That’s where clinical observation units come into play. They are designed to provide care for patients in this gray area. There are different models of hospital observation units. Closed-model units have limited admitting privileges. For example, some closed-model observation units will only allow emergency physicians to admit patients to observation care. The open-model approach allows patients to be admitted by multiple clinicians. Patients can be admitted directly from their physician’s office, for example. Space availability, staffing and types of patients to be cared for in the observation unit help determine which unit works best for the hospital.
Under this model, designated beds are set aside for observation care. Emergency nurses or dedicated nurses oversee patient care for these beds. Emergency physicians generally oversee the care of the patients, but specialists may be called for consultation. Sandra Sieck, R.N. of Sieck HealthCare Consulting supports this model. By locating observation patients within the ED, she says, patients won’t need to be moved until it is known where to move them. Other benefits include 24-hour physician coverage. “The further away observation patients are from the ED, the better chance clinicians will dilute the rules of observation care,” she says.
This model is fairly common. A separate unit is set up next to the ED, allowing for the easy transfer of patients to the unit, freeing needed space and allowing for oversight by ED physicians. As with the observation units within the ED, patients can be cared for by dedicated nurses or nurses from the emergency department. Emergency physicians generally oversee care of these patients in consultation with a specialist. However, other physician groups, such as internists or hospitalists, may also oversee care in these units.
Because of space constraints, some observation units are placed on patient floors. Dedicated nurses generally care for these patients, although floor or unit nurses may also manage care. Internists, hospitalists or other physician groups might oversee care. This type of unit may be a good approach for treating patients with specific illnesses, for instance, putting patients with chest pain or heart failure near the cardiology department with oversight by cardiologists. This model can help expedite care should patients need more advanced services.
This model allows hospitals with space constraints to provide observation care almost anywhere. Patients can be placed in any available hospital bed. Care is generally managed by the floor or unit nurses following the observation care protocols. The effectiveness of these units is subject to debate. According to Frank Peacock, M.D., of the Cleveland Clinic, “Virtual observation units are not the best way to do it right.…Hospitals need nurses and doctors who are good at observation care or they won’t get the outcomes they want. If there isn’t 24-hour physician coverage, it’s just another inpatient unit.” Robert Corrato, M.D., president and CEO of Executive Health Resources, a Newton Square, Pa., medical management company, disagrees. “There’s no need to build additional infrastructure,” he says, adding that dedicated staffing of observation units is a waste of labor costs. “It’s possible to cross-train staff to care for these patients.” Notes Bob Lipetz of the Society of Chest Pain Centers, “Staffing doesn’t matter as long as the protocols are clear for caring for the patient.”
The success of the observation unit relies upon making sure the right patients are admitted to the unit. This is important because observation units have time restrictions for care and generally have lower nurse-to-patient ratios than inpatient units and limited invasive monitoring capabilities. It’s also important from a claims perspective to ensure that the hospital will be reimbursed for services provided.
Developing inclusion and exclusion protocols is not easy, says Robert Corrato, M.D., president and CEO of Executive Health Resources, a Newton Square, Pa., medical management company. The protocols should be based on clinical evidence and treatment guidelines. “Most physicians don’t know the difference between Medicare inpatient claims and observation claims,” he says. The protocols will help physicians place patients in the appropriate care setting and optimize reimbursement.
Hospitals should anticipate that about 25 percent of observation patients will be admitted as inpatients, says Frank Peacock, M.D., of the Cleveland Clinic. If the percentage is higher than 25 percent, the observation unit is accepting patients with acuity levels that are more suited for inpatient care. If it is lower than 25 percent, the observation unit is admitting patients who could be better handled on an outpatient basis.
Observation care requires close collaboration between multidisciplinary groups within the hospital. The location and the types of patients treated in the unit determine which groups need to be involved. But, regardless of who’s involved in the care of the patient, the patient needs access to tests and treatments without impediment to allow for discharge within 24 hours.
In addition to emergency department physicians and nurses and the observation unit staff, the hospital needs processes in place to ensure effective collaboration between radiology, the laboratory, phlebotomists, dietary and social work, among others. Collaboration will allow for observation unit patients to be fast-tracked for testing and results. “It’s a process,” says Bob Lipetz, executive director of the Society of Chest Pain Centers, Columbus, Ohio, of observation care. “It needs to run seamlessly to make it effective.”
Once patients are admitted to the observation unit, the goal is to diagnose, monitor and treat patients within 24 hours. To facilitate this, hospitals should have evidence-based treatment protocols for all conditions that will be treated in the unit. The protocols should include nurse-driven standard orders, including the provision of ACE inhibitors or Nesiritide for heart failure patients, diagnostic testing and fluid management.
The intensive treatment provided in the observation unit helps improve patient outcomes. Studies show that patients treated in observation units have low 30-day readmission rates. And, patients who are admitted to the hospital from the observation unit generally have a shorter length of stay than those admitted directly from the ED or through a physician office.
The observation unit is more conducive to patient education than the emergency department. Patients spend a minimum of eight hours in the observation unit. Nurses or the hospital education staff can educate the patient on appropriate disease management while the patient is undergoing treatment. This can include instructional videos or printed materials.
Many of the conditions treated in observation units are chronic and require significant lifestyle adjustments to be managed effectively. When patients better understand their condition and make appropriate lifestyle adjustments, they can reduce the occurrence of symptoms and also reduce the need for hospitalization. Medication management, diet and when to seek medical care are among the topics that can be addressed when patients are in the observation unit.
Proper reimbursement for observation services depends on accurate documentation. The initial order for patient services by the physician must specify that the patient was admitted for observation care and why that was chosen rather than inpatient services. If the intake order simply says admitted, CMS will interpret it as inpatient services.
All tests and services need to be thoroughly documented on the patient record because CMS reimburses for these services based on the fee-for-service reimbursement model for some observation patients (see coding/reimbursement section). Anything left off the record means the hospital is not taking full advantage of the observation unit’s reimbursement model. Proper documentation by both the physician and nursing staff will demonstrate to CMS that the observation services provided a distinct clinical benefit that could not have been obtained by discharging the patient or admitting the patient to the hospital.
As with any hospital department, the quality of care provided depends upon the level of training of its staff. Physicians and nurses treat- ing observation patients need to have a clear understanding of the treatment protocols, as well as an understanding of the science behind the treatment. “If clinicians don’t understand the care they are providing, they won’t be able to make improvements in the level of the care,” Lipetz says. Training in observation care will help physicians admit the right patients to observation and will im- prove patient outcomes. Continuous education will ensure compliance and yearly nurse competency testing is also recommended.
Patients should be discharged from the observation unit upon completion of the appropriate tests and if they meet appropriate markers based on their condition. Each condition should have discharge criteria to determine whether the patient needs more care or is ready to go home.
Equally important, how- ever, is ensuring that a pa-tient’s home environment will support his or her re- covery. Social workers should be involved in this process and may have to make a home visit. When necessary, social workers may need to assist the patient by helping find long-term care or assisted-living arrangements. Social workers can also provide financial counseling to patients. Assistance with finding smoking cessation and other wellness programs is also recommended. It’s important, especially for patients with congestive heart failure, to make sure the patient has a follow-up appointment with his or her regular physician prior to discharge.
Outcomes data will determine the financial viability of the observation unit and demonstrate improvements to patient outcomes. This can be important for hospitals wishing to expand observation services and for proper utilization management.
“The financial metrics are difficult to ascertain for observation units because of the complex reimbursement model,” says Russell Holman, M.D., senior vice president of Cogent Healthcare, Irvine, Calif. “Organizations need to look at value more broadly.” This can include measuring length of stay, readmission rates and ED diversion rates. The reduced staffing levels for observation services vs. inpatient services should also be considered.
Hospitals should conduct community outreach to help educate the public on healthy lifestyles and also let them know when it’s the proper time to seek medical care. “We ask facilities to educate the community on the signs and symptoms of cardiac distress and inform them of the correct actions to take,” Lipetz says. About 70 percent of chest pain patients present themselves at the emergency department, he says. Community outreach can help direct patients to more appropriate care settings.
UC Davis operates a virtual observation unit, treating mostly chest pain and heart failure patients. “Physicians support the use of observation services because they know it’s well managed,” says Deborah Diercks, M.D., assistant professor, division of emergency medicine at the medical center. “The protocol-driven care results in better outcomes.” But, acceptance was gradual. “There’s a learning curve,” Diercks says. Physicians may initially resist care protocols. Nurses are an easier sell, she says. “They know what to expect and what to look for with their observation patients. The expectations are very clear.”
Observation patients are best managed by a single physician group, such as emergency physicians, says Charles Emerman, M.D., chairman, department of emergency medicine. “Having a single physician group oversee observation care assigns accountability. Without it, no one will be in control and it will drive length of stay.”
NorthEast operates an eight-bed chest pain evaluation unit, located on the second floor near cardiology. The unit is run by nurses, with input from cardiologists. “The purpose is to get the patient in, rule out an incident, and get them home,” says Carol Poteat, R.N., clinical director of cardiac services. “The worst-case scenario is that we place a patient in observation who needs greater acuity care.” The patients are located near cardiac services in case that happens. One drawback: Because the unit is on the second floor, many physicians treat it as an inpatient department. “Physicians don’t always have the sense of urgency they should have,” Poteat says.
Coding and reimbursement for observation services is a difficult process. Given the complexity of the conditions treated in observation units, Medicare beneficiaries make up a large proportion of observation patients. Private payers often use observation coverage by the Centers for Medicare & Medicaid Services as a model for their plans.
To reduce costs, CMS shifts patient care to the outpatient setting whenever appropriate. CMS established observation reimbursement to help hospitals place patients who need more than emergency care, but are not sick enough to require inpatient care. Before the changes in reimbursement, hospitals had little choice but to discharge patients to home, or place them in the inpatient setting. Observation services are reimbursed under the Outpatient Prospective Payment System.
CMS reimburses hospitals for observation services for a minimum of eight hours to a maximum of 24 hours. Hospitals are allowed to keep patients in the observation unit for up to 48 hours, but reimbursement stops at 24 hours. Observation services are bundled with the initial emergency visit, with three exceptions. If a patient with abdominal pain goes to the emergency department and receives emergency services, as well as observation services, the payment for the emergency services covers the cost of the observation care.
In 2001, CMS changed its reimbursement rules to provide an ambulatory payment classification to allow for separate payment for three medical conditions. CMS hopes to encourage hospitals to allocate resources to treat patients with these conditions at the beginning of the care process to improve outcomes and costs at the back end. The three conditions for which hospitals can bill separately are asthma, chest pain and congestive heart failure.
CMS says the treatment of these conditions in the observation unit is distinctly different from that provided in the emergency department. It will examine how well the separate payment works for these three conditions before expanding the list of conditions.
CMS provides a predetermined fee for each of these conditions. Any other services provided within the first 24 hours, such as cardiac enzyme tests or breathing capacity tests, can be billed on a fee-for-services basis.
Given the complexities of the billing process for observation services, hospitals are inconsistently reporting observation care. In fact, some hospitals do not bother to bill for services that can be billed for separately, leaving unclaimed reimbursement. “It’s important for hospitals to report and bill correctly for observation services, even if they don’t expect payment,” says Nelly Leon-Chisen, director of coding and classification for the AHA. CMS needs this data to help build its database to ensure appropriate reimbursement of observation services.
Observation care is a viable and financially prudent solution to treat patients with chronic conditions or presenting with certain symptoms such as abdominal pain. For that reason, private payers are starting to take notice. Rich Henwood, chief financial officer of St. Barnabas Health Care System, West Orange, N.J., says observation care is “the wave of the future and should be included in all payer contracts.”
St. Barnabas provides observation care in six of its eight hospitals; it’s likely to add the remaining two hospitals in the future. “In our system, with our patient mix, there’s a big opportunity for reimbursement for observation services,” Henwood says. “But unless you code, document and bill for it, they won’t pay.” The hospital’s vice president of managed care was able to demonstrate to its payers the benefits of observation care and get coverage included in its contracts.
Cigna HealthCare last year issued a coverage position on observation care. Coverage for observation services is similar to that of CMS.
Doing the math
|Comparing Medicare reimbursements for Chest pain|
DRG 143 — Chest pain
APC 0339 — Observation services
Source: H&HN research
HOW WE DID IT: This gatefold was compiled by reviewing observation unit literature and through multiple interviews with industry experts. Research: Lee Ann Runy (email@example.com)Design: Chuck Lazar (firstname.lastname@example.org)
This article first appeared in the March 2006 issue of H&HN magazine.