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Cost of Multiple Observation Deductibles Can Exceed Inpatient Admission

October 6th, 2016

PHILADELPHIA – If you think you are saving everyone money by assigning emergency department patients to observation care instead of admitting them, it’s not always that simple.

A single incidence of observational care can be a cost-saver all around, but multiple use within a 60 day period can actually cost patients more in co-payments than a hospital admission, according to a new study.

The report, published recently in the Journal of Hospital Medicine, found that situation for more than a quarter of beneficiaries with multiple observation stays.

“While most patients receiving observational care do spend significantly less in out-of-pocket co-payments, those with at least two observational stays within 60 days are potentially facing higher co-payments than if they were admitted," said lead author Shreya Kangovi, MD, an assistant professor at the University of Pennsylvania’s Perelman School of Medicine. "Additionally, the design of the Medicare benefit allows several ways in which observation stays may become more costly to patients. For example, Medicare patients are required to pay a percentage of the cost of each service provided during an observation stay, as opposed to a single fixed cost for an inpatient stay."

The study notes that, according to the Medicare Payment Advisory Commission, 1.8 million patients were held for observation nationally in 2012, an increase of 88% over the previous six years. Medicare categorizes observation care as an outpatient service, although patients typically stay in beds in the ED or other areas of the hospital while they are tested, treated, and assessed.

For the study, the researchers used Medicare data to identify hospital observation stays among beneficiaries from 2010 to 2012, finding that patients owed an average of about $470 – an amount much lower than the standard deductible of $1,100 for an inpatient admission. When beneficiaries had to return to observation care within 60 days of a prior observation stay, however, their cumulative costs more than doubled to an average of about $947.

For 26.6% of the patients, the costs eventually exceeded the inpatient deductible. The number of patients with multiple observation visits within a 60-day period rose by 22% between 2010 and 2012, according to study results.

That especially is a problem, Kangovi noted, because Medicare beneficiaries who return to the hospital frequently tend to have fewer financial resources and could be disproportionately affected.

"Some have suggested capping the total out-of-pocket expense for observation care at the inpatient-deductible amount,” senior author David Grande, MD, pointed out in a Penn press release. “This warrants further study since observational care is already more costly than inpatient stay for a significant portion of the patient population."