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Is Observation Status Responsible for the Decline in Readmissions?

By William Martinez Moderator | 27 Aug, 2015

The recent drop in hospital readmissions among Medicare patients has been encouraging. Coinciding with this drop in readmissions, has been increased use of "observation status” or "observing patients" (or treating returning patients in the emergency department) rather than “readmitting” them.

Personally I have witnessed the growth in observation status on the medical wards, often struggling to figure out what to do for patients who would be best off staying in the hospital but do not meet criteria for "inpatient status" and therefore are at risk of uncovered costly charges for hospital days. It is not uncommon to have a handful of patients "admitted" to the medical ward under "observation" status, which is covered as a outpatient service. Hospitals now have clinicians that review records of all "admitted" patients and police "obs" vs "inpatient" status. This did not exist when I first began my medical training.

The attached Health Affairs blog raises an important unanswered question: Is Observation Status and Increased ED Care Responsible for the Decline in Readmissions?

As an example, the author, David Himmelstein, argues that for patients discharged after heart attacks, "the urgent return rate has actually risen slightly; the reported 1.8 percent fall in readmission is more than offset by a 0.7 percent increase in observation stays and a 1.2 percent increase in ED visits." The data to do more formal analyses is just now becoming available to researchers.

What has been your experience with obs status?

Is it plausible that at least at some hospitals the drop in readmissions is do to reclassification than actually quality improvement?

What are the implications for policy?

Attached resource:



Elizabeth Glaser Replied at 1:56 PM, 27 Aug 2015

Hi William,
I brought up observation status in a past thread at GHDonline year or more ago. While I do not have the data to confirm this, I certainly believe that observation is being used inappropriately by hospitals to hold ill patients without incurring the cost or penalties of 30 day readmission. Few states have laws requiring that families be informed of what observation means and of the additional costs that may be incurred by them for items not covered. Patients on "observation" are brought into regular units and treated no differently except for the bill that goes to families for items not covered and for the fact that a patient cannot be covered for rehab or other services post hospitalization.

This is anecdotal, I know, but having seen this cycle play out while caring for a family member, then learning more about it, I find observation status to be used as the default in elders regardless of the severity of the condition. Observation was applied to my family member after a confirmed stroke and also after admission for bradycardia so severe that the paramedics had to use atropine enroute to the hospital.

Since I began to inquire more about it , I have found others that learned about observation the hard way - after loved ones were admitted with postop infections requiring debridement, broken hips and serious conditions.When I have spoken to the clinicians that admit under observation, they report that the hospital uses this practice because of medicare questioning "soft" admissions but the clinicians application of observation to clearly serious conditions belies that notion.

The clinician's understanding of observation seems to comes mainly from the hospital , not outside sources and both clinicians and discharge planners were totally unaware of the potential financial impact to families when the person is brought under observation.

Overuse of observation seems to beget a cycle wherein a person lands in the hospital and is discharged without adequate services, only to fail at home and need to come in again ( under observation) and again etc. We should of course confirm with hard data that observation is truly causing hardships to families and leading to more admissions, but again , I strongly suspect that it is.


William Martinez Moderator Replied at 11:21 PM, 29 Aug 2015


Thanks for sharing your experience. Regrettably, I have observed situations like the ones you describe. Observation status may be used by hospitals to game the system and not incur penalties for readmission; it remains to be seen how prevalent or not prevalent that is. Regardless, I think you raise other important concerns about observation status and its impact on patients and families that are concerning and worthy of deeper inquiry. There may be several reasons to reconsider the "obs status" vs. "inpatient" structure. Need better strategies that improve patient care while eliminating waste.


Elizabeth Glaser Replied at 3:04 AM, 30 Aug 2015


1.One could still admit under observation but allow patients to be eligible for more comprehensive services after discharge to home to reduce the chances of readmission.

2.Hospitals should be required to fully explain the financial implications of observation at the time of admission.


3.ER staff and discharged planners should be clearly made aware of the costs to patients associated with this practice so they can try to mitigate that impact if observation is truly the better option.

This Community is Archived.

This community is no longer active as of December 2018. Thanks to those who posted here and made this information available to others visiting the site.