What Is an Observation Stay? Evaluating the Use of Hospital Observation Stays in Medicare

BACKGROUND/OBJECTIVES Observation stays are increasingly common for older adults, yet little is known about the extent to which they are being used as the Centers for Medicare and Medicaid Services (CMS) originally intended for unscheduled or acute problems and whether different types of services are reflected in current billing practices. DESIGN Observational cohort study. SETTING/PARTICIPANTS A total of 867,165 qualifying observation stays identified from 451,408 patients using Medicare fee‐for‐service claims data from a nationally representative 20% beneficiary sample between January 1, 2014, and November 30, 2014. MEASUREMENTS Using descriptive and multivariable logistic model analytic approaches, we evaluated the patient, stay, and hospital characteristics associated with the most common billing practice for observation stays (charge revenue center 0761 exclusively) vs all other practices. RESULTS Sixty‐three percent of observation stays were billed exclusively under the 0761 revenue center and were more likely to be for preplanned chronic conditions consisting of short‐term treatments (eg, chemotherapy, radiation therapy, wound care, paracentesis, epidural spinal injection). These stays appeared to be used for recurrent single‐day visits, given their strong association with prior visits and a high rate of reobservation (41.4%), with frequent return stays appearing in a 7‐day pattern. CONCLUSION Nearly two‐thirds of observation stays are billed using only the 0761 revenue code and appear to be for prescheduled, repeated treatments—differing substantially from CMSʼ explicitly stated purpose as a form of care used while a healthcare provider determines whether a patient presenting for unscheduled or acute conditions requires inpatient hospital admission or can be safely discharged. Guidance is needed from CMS to clarify the appropriate role of observation stays, with discussion as to whether episodic single‐day, planned treatment for chronic conditions not originating in the emergency department should be billed as observation stays or placed under another mechanism. Subsequent research is needed to understand how the current use of observation stays impact patient out‐of‐pocket costs. J Am Geriatr Soc 68:1568‐1572, 2020.