Observation Volumes Continue to Stress U.S. Hospitals

Observation billing for level of care is the strategy that insurance companies are using to hold their costs down.

Whether you are part of a not-for-profit or for-profit organization, let’s focus on the care being provided to the insurance card member in this article.

I know that observation billing for level of care is the strategy that insurance companies are using to hold their costs down. The divide between inpatient and outpatient care can be in excess of $7,000 in some areas, and obviously much, much more than that when the stay includes any case that may have social determinants of health (SDoH) considerations.

If you are like most places, the billing status does not dictate the care provided; it just dictates the reimbursement you can expect to obtain. And often, insurance benefits are not used correctly. So, how do we combat that?

Starting with contracting: get involved with your own payer contracting. Request that all of your contracts include utilization review standards. Expect that each insurance provider should identify the screening tool they will use, and more importantly, establish a physician advisor peer-to-peer process. 

Here are some ideas of which to be aware:

• Each criteria set has observation guidelines. Insurances tend to only approve observation because they can tell you the patient meets those. But the patients, at a minimum, need to meet observation status in order to meet inpatient. Don’t get caught here.
• Insist that the peer-to-peer process include discussing the case with your physician advisor. Your attending physicians are not “peers” to medical directors at insurance companies, and really, they should be able to care for patients, not wait for a call from an insurance company.
• Make sure that any reports the insurance company provides to your facility for observation as a percentage of cases does not include maternity care. The maternity laws are pretty clear about inpatient status, and while we occasionally get a technical for no notification, those are all approved. This artificially lowers your observation rate.
• Participate in all of the JOCs (joint operating committees) and provide examples of the issues you are having.

Let me close by discussing traditional Medicare, the two-midnight rule, and the inpatient-only list. In 2021, the Centers for Medicare & Medicaid Services (CMS) removed more than 500 procedures from the inpatient-only list. Since then, they admitted they did not follow their own process in evaluating those procedures, so most of them have been added back to the list for 2022. And perhaps more importantly, procedures that could be moved to a freestanding surgery center were also moved back into the hospital procedure area.

Keep an eye out for all of these issues. They affect your bottom line significantly. In April 2016, a ruling was issued indicating that the actual order for a procedure could be placed after the surgery, if identified as an inpatient-only list procedure. Put someone on the case of reviewing all Medicare surgery cases, before and after surgery. They can prove their return on investment usually in just two months of work. And please, do not forget to communicate with the patients!