Watch and Earn

With recent changes in Medicare rules making reimbursement even trickier for patients who aren’t well enough to be sent home quickly but aren’t sick enough to move to an inpatient bed, hospitalists are increasingly being tapped to set up observation units at medical centers around the country.

These patients, experts say, are the ones hospitals are most likely to lose money on. That’s because the Centers for Medicare and Medicaid Services (CMS) won’t pay unless a patient meets stringent guidelines for admission to the hospital. And while recently rewritten rules allow payment for 24 hours of observation, they also can also lead to denial of claims when patients aren’t considered sick enough to have been admitted.

When they’re well run, observation units can even help cover losses from emergency departments (ED) that have trouble collecting on bills because most of their patient population is uninsured or underinsured.

But the drive to create observation units isn’t just about money, says Frank W. Peacock, MD, vice chair of the emergency department at the Cleveland Clinic in Ohio. Studies have shown that death rates drop when hospitals add observation units, Dr. Peacock says.

Despite these clear benefits, experts estimate that a mere 20% of medical centers around the nation have observation units.

This may in part be because creating such a unit—also known as clinical decision unit—takes a lot of planning to start up, says William T. Ford, MD, medical director for Nashville, Tenn.-based Cogent Healthcare and chief of the section of hospital medicine at Temple University in Philadelphia. Without proper planning, observation units can fail to flourish—or just fail.

That’s what happened at Temple, Dr. Ford says. “The original observation unit got bogged down in its own infrastructure,” he explains. “It wasn’t cost effective.”

After that first attempt failed, Temple reached out to Cogent and Dr. Ford for help in developing an observation unit that would be financially viable.