Identifying Observation Stays in Medicare Data: Policy Implications of a Definition
Observation stays are increasingly common, yet no standard method to identify observation stays in Medicare claims is available, including events with status change. To determine the claims patterns of Medicare observation stays, define comprehensive claims-based methodology for future Medicare observation research and data reporting, and identify policy implications of such definition, we identified potential observation events in a 2014 20% random sample of Medicare beneficiaries with both Part A and B claims and at least 1 acute care stay (1,667,660 events). Observation revenue center (ORC) and Healthcare Common Procedure Coding System codes occurring within 30 days of an inpatient hospitalization were recorded. A total of 125,920 (7.6%) events had an ORC code, and 75,502 (4.5%) were in the outpatient revenue center. Claims patterns varied tremendously, and almost half (47.3%, 59,529) of the ORC codes were associated with an inpatient claim, indicating status change and demonstrating a need for clarity in observation policy. The proposed University of Wisconsin method identified 72,858 of 75,502 (96.5%) events with ORC codes as observation stays, and provides a comprehensive, reproducible methodology. Funding: National Institute on Minority Health and Health Disparities of the National Institutes of Health under Award Number R01MD010243.
© 2019 Society of Hospital Medicine
RESULTS
Of 1,667,660 hospital events, 125,920 (7.6%) had an ORC code within 30 days of an inpatient hospitalization, of which 50,418 (3.0%) were found in the inpatient revenue center and 75,502 (4.5%) were from the outpatient revenue center. A total of 59,529 (47.3%) ORC codes occurred with an inpatient claim (50,418 in the inpatient revenue center and 9,111 in the outpatient revenue center), 5,628 (4.5%) had more than one ORC code on a single hospitalization, and more than 90% of codes were 0761 or 0762. These results illustrated variability in claims submissions as measured by the claims themselves and demonstrated a high rate of status changes (Table).
Observation stay definitions varied in the literature, with different methods capturing variable numbers of observation stays (Figure, Appendix). No methods clearly identified how to categorize events with status changes, directly addressed ORC codes in the inpatient revenue center, or discussed events with more than one ORC code. As such, some assumptions were made to extrapolate observation stay case findings as detailed in the Figure (see also Appendix). Notably, reference 4 methods were obtained via personal communication with the manuscript’s first author. The University of Wisconsin definition offers a comprehensive definition that classifies status change events, yielding 72,858 of 75,502 (96.5%) potential observation events as observation stays (Figure). These observation stays include 66,391 stays with ORC codes in the outpatient revenue center without status change or relation to inpatient claim, and 6467 (71.0%) of 9111 events with ORC codes in the outpatient revenue center were associated with an inpatient claim where ORC code(s) is located in Category 4.
CONCLUSIONS
This study confirmed the importance of a standard observation stay case finding methodology. Variability in prior methodology resulted in studies that may have included less than half of potential observation stays. In addition, most studies did not include, or were unclear, on how to address the increasing number of status changes. Others may have erroneously included hospitalizations that were ultimately billed as inpatient, and some publications lacked sufficient detailed methodology to extrapolate results with absolute certainty, a limitation of our comparative results. Although excluding some ORC codes in the outpatient revenue center associated with inpatient claims may possibly miss some observation stays, or including certain ORC codes, such as 0761 (treatment or observation room - treatment room), may erroneously include a different type of observation stay, the proposed University of Wisconsin method could be used as a comprehensive and reproducible method for observation stay case finding, including encounters with status change.
This study has other important policy implications. More than 90% of ORC codes were either 0761 or 0762, and in almost one in 20 claims, two or more distinct codes were identified. Given the lack of clinical relevance of terms “treatment” or “observation” room, and the frequency of more than 1 ORC code per claim, CMS may consider simplification to a single ORC code. Studies of observation encounter length of stay by hour may require G0378 in addition to an ORC code to define an observation stay, but doing so eliminates nearly half of observation claims. Additionally, G0379 adds minimal value to G0378 in case finding.
Finally, this study illustrates overall confusion with outpatient (observation) and inpatient status designations, with almost half (47.3%) of all hospitalizations with ORC codes also associated with an inpatient claim, demonstrating a high status change rate. More than 40% of all nurse case manager job postings are now for status determination work, shifting duties from patient care and quality improvement.26 We previously demonstrated a need for 5.1 FTE combined physician, attorney, and other personnel to manage the status, audit, and appeals process per institution.27 The frequency of status changes and personnel needed to maintain a two-tiered billing system argues for a single hospital status.
In summary, our study highlights the need for federal observation policy reform. We propose a standardized and reproducible approach for Medicare observation claims research, including status changes that can be used for further studies of observation stays.
