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.