Observation Status

Resources from SHM

The Observation Status Problem: Impact and Recommendations for Change

From Policy to Practice: Case Studies in Implementing the 2-Midnight Rule

Observation was meant to be a short period of time for providers to assess patients and decide whether a patient requires admission for inpatient care or can be discharged. Typically this was meant to last fewer than 24 hours and only rarely spanned longer than 48 hours. Over the past ten years, however, the incidence and duration of observation status stays has increased significantly, magnifying inherent problems with the policy.

Medicare considers observation an outpatient service and it is therefore paid under Medicare Part B. Medicare Part B services have both a deductible and cost-sharing for beneficiaries, meaning the cost to the patient of an observation stay is more variable than for a traditional inpatient stay. Time spent under observation also does not count towards the three-day inpatient stay requirement for Medicare skilled nursing facility (SNF) coverage.

Hospitalists are central players in the inpatient admission decision and see firsthand the impact of observation status policy on patient care and provider workflow. SHM is working for common-sense and meaningful reforms to observation status that mitigate the negative impacts on patients and improve the decision-making process for hospital admissions.


Two-Midnight Rule

Medicare promulgated the two-midnight rule in 2013 in response to the rise in observation stays. The rule is intended to provide a clear time-based threshold for when a patient should and should not be admitted as an inpatient. Any patient whose hospital stay is expect to cover at least two midnights is generally considered inpatient, while any patient who requires less than two midnights would be observation. The two-midnight rule has been highly controversial and full implementation of the policy has been delayed until March 31, 2015. In the interim, the Centers of Medicare & Medicaid Services has been conducting educational probes to help hospitals and providers better understand how to implement the rule.


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