Hospital Observation Cases Cost Money, Cause Confusion

March 26--Don't count on being admitted to the hospital if you go to the emergency room.

In fact, the chances are good that you will be classified as an observation case by your health insurer, even though the criteria insurers use to make such decisions are usually secret. This is a big deal: The classification will determine the out-of-pocket cost of your care and whether Medicare will pick up the tab for a nursing home, should you need skilled care afterward.

Studies show that the number of observation cases is up sharply in Pennsylvania. Hospitals are pushing back, but the trend can leave consumers in the dark, despite a 2-year-old law meant to keep patients apprised of their admission status.

"The patients are most confused," said Maryann Singley, vice president of patient care services at Excela Latrobe Hospital. "They don't quite grasp the concept that from an insurance perspective, they're not truly inpatients."

Medical care typically is classified as inpatient, which requires admission to a hospital, and outpatient, which means the patient goes home soon after care is rendered. But hospital administrators say the same care is provided, regardless of the insurer's classification.

"We're delivering the same care whether you wind up as an inpatient or as an observation case," said Gary Weinstein, president and CEO of Washington Health System, where the number of cases classified as observation has been rising by double digits annually in recent years. "It's really all about payment. It's a way for insurance companies to pay less."

Added Excela's Ms. Singley, "We do what's best for the patient, regardless of what insurers are doing."

Douglas Corkum, an emergency room physician for 32 years at Washington Hospital before being named medical director at Highmark Health, said he expects the number of observation cases to level off as hospitals improve efficiencies. And in any case, emergency room doctors can determine whether an admission is warranted.

"We're all under the gun to improve efficiency and decrease costs, no matter which side of the fence you're on," Dr. Corkum said. "Emergency room doctors are diagnosticians, and the vast, vast majority of the time, we know what's going to happen with that patient."

The observation designation is appropriate for people who are not sick enough to be admitted, but still need monitoring for such things as chest pain, dizziness or nausea, said Marylou Buyse, senior medical director at Highmark. Observational status also helps tamp down the overall cost of health care by only paying for the medical care that was necessary.

"We're all challenged by the high cost of health care, and inpatient care is the highest cost care," Dr. Buyse said.

Proprietary rules

Hospital administrators say the criteria health insurers use to determine whether a patient treated in the emergency room is an observation case or hospital admission are proprietary. The rules can also change without warning.

They also say that no hospital wants to admit a patient who truly doesn't need the care while the current system can leave the hospital in the dark about how much they will be paid for a given case.

"There are a lot of instances when the hospital doesn't even know if they're going to get paid until the patient is gone," said Douglas Harbaugh, an emergency room physician for 10 years at Excela Frick Hospital in Mt. Pleasant. "It's a big issue for patients."

Medicare typically requires co-pays of 20 percent for observational or outpatient care by a doctor, but not for a hospital admission. What's more, Medicare requires a three-day hospital admission before the government health plan will pick up the cost of a nursing home if the patient needs skilled care.

That means that an elderly patient could wind up having to foot the bill for nursing home care -- at an average mean rate of $253 a day in Pennsylvania -- after leaving the hospital for an observational stay.

A 2014 state law requires patients to be told their admission status, but there is no penalty for noncompliance. A similar Medicare requirement goes into effect in summer, but it's uncertain what the patient, who is usually undergoing treatment for an emergency condition, could do with the admitting information.

A 'financial cliff'

Hospitals are also smarting from the rising tide of observation cases, said Harold Miller, president and CEO of the Center for Healthcare Quality and Payment Reform, a Downtown-based consultant.

In the eyes of Medicare, outpatient care means the same thing as an observation case, so depending on the diagnosis, hospitals are paid about one-fifth as much -- $1,200 compared to $6,000 -- for an observation case as for an admission, even though the care provided is often the same.

"If you walked in the room, you would have trouble telling the difference between an inpatient stay and an observation stay, but there is this financial cliff," Mr. Miller said.

Based on Medicare and Medicaid fee-for-service reimbursement rates, the tide of observation cases costs 62 Western Pennsylvania hospitals $150 million a year in revenue, according to Denis Lukes, vice president of payor relations and reimbursement at the Healthcare Council of Western Pennsylvania, a trade group. Observation cases in the region shot up 27.5 percent over four years or about 40,000 cases through the first quarter of 2016.

The increase was even greater among 55 hospitals in southeastern Pennsylvania, where the number of observation cases jumped 50 percent between 2010 and 2015, according to a study by the Hospital and Healthsystem Association of Pennsylvania, a Harrisburg-based advocacy group.

"The uncertainty is the biggest problem," said Keith Kanal, chief medical officer at the Pittsburgh Regional Health Initiative, a Downtown educational and advocacy nonprofit. "You want to take care of these patients, but if you make them an admission and they're an observation, you lose the revenue."

Hospitals are pushing back, first by creating patient observation units, where testing and other interventions can be expedited while doctors see whether the patient's condition improves. Washington Hospital created such a unit five years ago, and one is being considered at Monongahela Valley Hospital.

Heart problems are the most common complaint leading to questions about admission. Excela Health began monitoring these patients in the emergency room last October, where testing and other medical interventions are expedited until a decision is made. The hospital system also developed protocols to help doctors make the right decision.

In addition to creating an observation unit in 2010, St. Clair Hospital also hires doctors to appeal insurer determinations about admissions, according to G. Alan Yeasted, chief medical officer. The strategy has worked, with an overturn rate of 75 percent of adverse decisions by insurers, he said.

But the cost of the success at St. Clair has come at a price as administrative overhead increases with the cost of appeals, he said.

"We're struggling like everyone else in the country," Dr. Yeasted said. "It's a national disgrace for patients. They're the ones suffering."

Kris B. Mamula: [email protected] or 412-263-1699

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