Observation care continues to be a hot topic in the news for both Medicare and Commercial health plans in the United States today. One aspect of observation care is the lack of a clear definition of what constitutes an observation case. In the news the primary focus on observation case definition revolves around when an observation case should be considered an inpatient stay. For example, on July 30th, an investigation conducted by the Department of Health and Human Services Inspector General found both Medicare officials and hospitals are struggling to fully understand the difference between observation and inpatient status. In fact this report noted that the six of the top 10 reasons for observation care were also among the 10 most frequent reasons for a short inpatient hospital stay of one night or less, http://www.kaiserhealthnews.org/Stories/2013/July/30/IG-report-observation-care.aspx. In June of 2013 Premier requested the Centers for Medicare and Medicaid Services define observation care as inpatient after 72 hours of care, http://www.healthdatamanagement.com/news/hospital-long-term-inpatient-prospective-payment-system-46305-1.html.
Additionally, we find there to be a lack of uniformity in the definition for considering observation cases being distinct from an emergency room (ER) case or not. We feel this lack of clarity is important particularly when we have to consider the rising costs and rates of ER usage and the ancillary services being provided in that setting of care.
When Milliman researched how commercial health plans define observation care we found various models. For example we found some contracts to state that when ER services precede an observation stay, the ER services are considered to be incidental to the observation stay and are not separately reimbursed. For other contracts, ER and observation services can both be reimbursed separately. Currently, the Milliman Health Cost Guidelines (HCGs), embodied by an algorithm within the popular Milliman HCG Grouper, have ER services override observations services if they are billed together on the same claim, all costs and services are bundled into the ER case.
In a study of the Milliman normative databases, commercial health plan data in the United States using incurred medial claim data from 2010 and 2011, we found total observation care cases add up to be 40% of all emergency room cases, see the table below.
Furthermore the average allowed unit cost for ER cases with observation services included in the same claim was $3,891.34.
These data points are just the beginning to our exploration to re-evaluate if and when a claim or set of claims should be labeled as observation care or ER. For example should care after 8 hours in the ER shift to becoming an observation case? Are the service units encoded on claims data credible enough to use as hours of observation care in all situations? Again we must note that included in these costs are ancillary services which need to be attributed to either an ER or an observation case. See an earlier blog post on this related topic as well, http://medinsight.wpengine.com/bid/305155/What-is-driving-Emergency-Room-costs, since the increases in services over time have been considered to be a leading driver of cost trends in the ER.
We are now being driven by these questions to work in the coming summer months of 2013, with our clients input, to hopefully add transparency in the process of defining observation care. We look forward to hearing any and all feedback so please email us or add comments to this blog post for the community to discuss.