Observation Rate Review & Analysis for Hospitals

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Hospitals continually express interest and concern as to whether they have the “proper” observation rate for their Hospital.  Definition of Observation Rate:  the number of Observation Patients divided by the number of Hospitalized patients (Inpatients plus Observation Patients). 


An Observation Rate which is too low is a compliance issue and puts the institution at risk for audits, OIG investigations and monetary take-backs. 


An Observation Rate which is too high is poor compliance, lower than deserved revenue and puts a financial burden on patients which is unfair and sometimes crushing.  


Therefore, it is important that every hospital has an Observation Rate appropriate for their Hospital.


What should your Observation Rate be?


There is no standard benchmark, but you can get a good sense of what the Observation rate should be if you consider specific individual hospital factors like location (urban, suburban or rural), type (critical access, tertiary referral center, teaching hospital) and local market forces including third party payer guidelines, policies and procedures. 


The only way to truly know your “Optimal and Compliant” Observation Rate is to do an audit of charts to see what the Observation Rate would be if cases were reviewed by an experienced Physician Advisor who uses screening criteria for Level One Reviews (InterQual or MCG) and then used “Complex Decision Making” ability to judge the Severity of Illness, Risk of Adverse Outcome, Need for Hospitalization and Need for 2 Medically Necessary Midnights. 


We offer a detailed and expert review of Observation cases for the purpose of assessing clinical appropriateness of “observation level of care” using all the available information in the medical record. The assessment consists of a thorough review of 100 observation cases to make a determination as to whether the patients were appropriately placed in observation.


If your Observation Rate is 30% and we find that all 100 cases were appropriately placed in Observation Status, then your Observation is correct for your Hospital at 30%.  If we find that one third of your Observation cases should have been Inpatient, then your rate goes from 3 OBS for every 7 Inpatients, to 2 Observation patients for every 8 Inpatients, and your Observation Rate should be 20% which would lead to an increase in compliant revenue of $22 Million Dollars per year for a 500 Bed Hospital.  


For a 500 bed Hospital, each 1% increase or decrease in the Observation Rate is worth $2.2 million dollars in revenue per year. 


Our report and Executive Summary includes Quantifiable results with Management Action Plan and clear recommendations and next steps to compliantly achieve the proper Observation Rate for your Hospital.  We also support execution of the plan if requested.