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The new observation status: The good, the bad and the ugly

From the December ACP Hospitalist, copyright © 2013 by the American College of Physicians

By James S. Newman, MD, FACP

Well it's happened again. Just when you thought it was safe to go back in the water, CMS has developed a new definition of inpatient status, new rules and regulations—all of course to benefit our patients.

But this new definition is not so concisely defined. Night is day and day is night (unless your patient is admitted at 1 a.m.!). The Greek goddess of chaos, Eris, throws her apple of discord at your feet. It looks so delicious that you think just a nibble won't hurt, but eventually it leads to the Trojan War.

Courtesy of James S. Newman.

Courtesy of James S. Newman.



Our nibble, the interpretation of a few lines in the 1,600-page Inpatient Prospective Payment System (IPPS) 2014 document, is a chaotic piece of fruit that could lead to Pandemonium (defined by Milton in “Paradise Lost” as the capital of Hell).

Every hospital needs admission criteria. This is not a new idea. The first mention of such criteria in English occurs in a poem, “The HyeWay to the Spyttel House” from 1536 by James Copland. He describes the Hospital of St. Bartholomew in Smithfield, England. The Porter or “admissions officer” says,

“Forsooth yea

we do such folke in take

That do aske lodging of our lords sake

And in dede it is our custome and use

Somtyme to take in

and some to refuse.”

They wanted “Old People, and those Men sore wounded by great Vyolence or eaten with Pokes and Pestilence” but had no use for “Mylchers, Hedge Creepers or Sham Beggars.”

According to Benjamin Franklin, the first admission criteria in colonial America were written in 1752 for the Pennsylvania Hospital in Philadelphia. Patients had to be deemed curable (unless they were “Lunatiks”), require the conveniences of the hospital (have sufficient severity of illness), and, in some cases, gain pre-approval from managers. Also, patients with an infectious distemper could not be admitted unless a proper apartment (isolation) was available.

These were individual institutional rules. Leap ahead another two centuries or so to 1965. President Lyndon Baines Johnson signed Title XVIII of the Social Security Act into law. This legislation, a.k.a. “Health Insurance for the Aged and Disabled,” established Medicare Part A hospital coverage, with a variety of mandates for hospital admission but ill-defined guidelines. Fee-for-service payments had poor oversight, and there was little impetus to manage the length of stay; in fact a negative incentive existed. Observation care did not exist.

In 1983, the first IPPS was instituted, based on Diagnosis- Related Groups (DRGs) instead of fee-for-service. Peer Review Organizations issued payment denials. Many hospitals turned to the ill-defined “observation status” to avoid denials and allow fee-for-service. Eventually observation became better defined in 1998, with CMS offering the suggestion that a 24- to 48-hour window was appropriate. Later, Recovery Audit Contractors began enforcing this concept, with the first audits occurring in 2005.

Now we come to the IPPS 2014, the 2-midnight rule. (See this issue's cover story on page 10 for more details.) This new rule is intended to limit long observation (OBS) stays, which we all agree are bad for patients financially; they pay their Part B copay and don't qualify for skilled nursing care after discharge. But like Eris' apple, the new system could lead to chaos.

The IPPS 2014 rules went into play Oct. 1. CMS granted an extension to get systems up and running until audit enforcement begins, presumably in April.

Now like Clint Eastwood, squinty eyes and all, let me show you the Good, the Bad and the Ugly.

The good

This rule “should” make it easier to convert OBS patients to inpatient, which will benefit the patient. Additionally, in the past, if the status was wrong in the other direction, and the inpatient should have been OBS, the only option was Condition Code 44, which would swing the patient back to OBS, but this had to happen prior to discharge. The new regulation allows this change to occur post-discharge as a self-audit. This will prevent writeoffs and RAC audits, which would be good.

The bad

A midnight spent in the emergency department or in OBS counts as 1 of the 2 midnights to obtain inpatient status, but the night does not count towards the 3 midnights needed for skilled nursing placement. This is very confusing to everybody, especially the patients.

The ugly

Worse is the need to attest and order inpatient status. Without either of these, the admission will not pass an audit, regardless of the care given. This creates an added, and I believe unnecessary, burden to clinicians and health care systems.

The new rule specifically calls for attending physicians with admission privileges to attest and order inpatient status. This means residents, nurse practitioners (NPs) and physician assistants (PAs), unless they have been granted privileges, cannot place the order. Additionally, the status determination must be initially made by the privileged clinician, not a utilization review nurse or case manager.

In other words, physicians will be asked to predict how long a patient will be hospitalized. Many of us are adept at estimating a length of stay, but from others, this question will draw creative expletives.

What's next?

Most physicians do not know or frankly care about these new OBS rules, making the education effort extreme. In every teaching institution in America, hospital administrations are scrambling to figure out how an attending physician will sign this order. Hospitals that use NPs or PAs to admit patients are trying to decide whether they will be credentialed. Making it all the more complex, the rules are still ill-defined and subject to change and clarification.

So there we have it. CMS, playing the role of Eris, has given us a presumably well-meaning apple. Will it be nutritious and limit long OBS stays, or will it lead to enhanced chaos and discordance in hospital admissions? To quote Mel Brooks, “Hope for the best. Expect the worst. Life is a play. We're unrehearsed.”

Dr. Newman is a hospitalist at Mayo Clinic in Rochester, Minn., and the editorial advisor for ACP Hospitalist.

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