Because hospitals are expensive and often cause harm, there has been a big focus on reducing hospital use. This focus has been the underpinning for numerous policy interventions, most notable of which is the Affordable Care Act’s Hospital Readmissions Reduction Program (HRRP), which penalizes hospitals for higher than expected readmission rates. The motivation behind HRRP is simple: the readmission rate, the proportion of discharged patients who return to the hospital within 30 days, had been more or less flat for years and reducing this rate would save money and potentially improve care. So it was big news when, as the HRRP penalties kicked in, government officials started reporting that the national readmission rate for Medicare patients was declining.
Rising use of observation status
But during this time, another phenomenon was coming into focus: increasing use of observation status. When a patient needs hospital services, there are two options: that patient can be admitted for inpatient care or can be “admitted to observation.” When patients are “admitted to observation” they essentially still get inpatient care, but technically, they are outpatients. For a variety of reasons, we’ve seen a decline in patients admitted to “inpatient” status and a rise in those going to observation status. These two phenomena — a drop in readmissions and an increase in observation — seemed related.
I — and others — spoke publicly about our concerns that the drop in readmissions was being driven by increasing observation admissions. An analysis by David Himmelstein and Steffie Woolhandler in the Health Affairs blog suggested that most of the drop in readmissions could be accounted for both by increases in observation status and by increases in returns to the emergency department that did not lead to readmission. Two months later, a piece by Claire Noel-Miller and Keith Lund, also in the Health Affairs blog, found that the hospitals with the biggest drop in readmissions appeared to have big increases in their use of observation status. It seemed like much of the drop in readmissions was about reclassifying people as “observation” and administratively lowering readmissions without changing care.
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