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Observation or Inpatient Status?

by | Nov 8, 2017 | Business Intelligence, Clinical Analytics, Clinical Data

5 Clinical Analytics 5 Business Intelligence 5 Observation or Inpatient Status?

A Closer Look at the Importance of Status Determinations

Determining the appropriate status level for patients (Observation or Inpatient) at a hospital’s points of entry is critical. Correct status determination can increase patient satisfaction by avoiding unnecessary cost to a patient while in observation (co-pays), and also ensure the immediacy of patient outcomes such as in the case of not achieving the three (3)-day qualifying stay if discharge to a skilled nursing facility is required. Additionally, assigning the correct level of patient care can safeguard regulatory compliance and help to achieve a hospital’s financial goals.


When Centers for Medicare and Medicaid Services (CMS) first introduced the “two-midnight rule” in 2013, it was an attempt to provide clarification on status determination after the industry witnessed an increase in observation status coupled with a lack of appropriate conversion of patients to inpatient status. CMS did not eliminate the medical necessity component to the rule so review of the admission with evidence-based criteria remains critical. The two-midnight rule added a layer of complexity to this equation and the result has been total confusion on the part of many hospital organizations.


Assessment and Focused Improvement

As part of a comprehensive assessment at a large, 5-hospital academic medical center, a project was initiated specifically on status determination within the emergency room point of entry.

The following is an overview of the process, outcomes and benefit realization achieved during the 16-week project.


The status determination project began by reviewing each patient in each Emergency Department (ED) concurrently as the level of care decision was being determined. This utilization review was performed using InterQual® criteria as lab results and radiology results were being received. If the patient met the criteria for inpatient level of care, a discussion was held with the admitting provider to discuss what the provider’s assessment and plan were for treatment. The provider was also strongly encouraged to document any additional clinical indicators to paint the complete picture of the patient’s condition. If the patient had Medicare as the primary insurer, a discussion occurred to determine what the anticipated Length of Stay (LOS) was expected to be.

Outcomes and Benefit Realization – over $4M Realized

Facility Patient Status
A $690K
B $570K
C $910K
D $1.62M
E $530K
Total $4.32M


A total estimated benefit of $4.32 million was achieved within the 16-week timeframe. During this same period, observation rates steadily decreased at most facilities when compared to the baseline average but were still in line with the nationwide average. While this may seem like a simplistic process, determining the right status at the point of entry produced a significant change in revenue.

In Closing

With a qualified case manager reviewing each observation patient and inpatient admission through evidence-based criteria to establish medical necessity and to assist the physician with determining the proper level of care, positive results can be achieved. By pairing this approach with the two-midnight rule for Medicare patients, organizations can properly retain revenue for services that are being provided while achieving patient satisfaction and proper billing.

Sue Erwin is a Managing Director with Clinical Intelligence, LLC.

Contact us to learn more about how we can help you effectively determine that your patients are in the correct level of care. Email [email protected] or call (888) 341-1014.



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