Hospital ‘Observation Care’ – Different in the Real World than in CMS Definition Interview with:
Ann M. Sheehy, M.D., M.S.
Associate Professor
Division Head, Hospital Medicine
University of Wisconsin Department of Medicine
Ann M. Sheehy, M.D., M.S.
Associate Professor
Division Head, Hospital Medicine
University of Wisconsin Department of Medicine What are the main findings of the study?

Dr. Sheehy: There were three main findings of our study.

First, we found that observation in clinical practice is very different from the CMS definition of observation. CMS states that observation should rarely last longer than 48 hours, yet 16.5% of our observation encounters lasted longer than 48 hours. CMS also states that observation care is “well-defined”. We found there were 1141 distinct observation codes for our 4578 observation encounters, indicating that observation care is not well defined.

Second, we found that observation care disproportionately affects the general medicine population, as over half of our observation encounters were on the general medicine services. These patients also had longer length of stay, were older, more likely to be female, were more likely to need discharge to a skilled facility, and were more likely to have government insurance as compared to patients on other services. This indicates that observation care adversely affects the adult general medicine population more than other patients on other types of services.

Finally, we found that observation cost was greater than reimbursement, resulting in a net negative financial margin. Were any of the findings unexpected?

Dr. Sheehy: We knew that observation encounters, as well as observation length of stay per encounter, were both increasing based on Medicare data. However, we were surprised at just how different observation care was in clinical practice as compared to the CMS observation definition. We were also surprised by how many more general medicine patients were subject to observation care as compared to other patients needing other specialties, and we were surprised at the financial losses resulting from these encounters. What should clinicians and patients take away from your report?

Dr. Sheehy: I think every inpatient provider has taken care of patients who need to be in the hospital, but who don’t meet “inpatient criteria”. These patients are often hurt financially by being considered “outpatients” (as observation is considered outpatient). But data can be a powerful addition to anecdotal reports in prompting change, so we hope that our article helps add to the discussion of how observation status can be reformed. What recommendations do you have for future research as a result of this study?

Dr. Sheehy: While observation regulations may change over time, observation care is not likely to be eliminated completely. With that, it will be important to study ways to make observation care more efficient and cost effective, and to create other alternatives to prevent these hospital stays altogether.


Sheehy AM, Graf B, Gangireddy S, et al. Hospitalized but Not Admitted: Characteristics of Patients With “Observation Status” at an Academic Medical Center. JAMA Intern Med. 2013;():-. doi:10.1001/jamainternmed.2013.8185.

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