BACKGROUND

Observation status (OBS) stays incur similar costs to low-acuity, short-stay inpatient (IP) hospitalizations. Despite this, payment for OBS is likely less and may represent a financial liability for children’s hospitals. Thus, we described the financial outcomes associated with OBS stays compared to similar IP stays by hospital and payer.

METHODS

We conducted a retrospective cohort study of clinically similar pediatric OBS and IP encounters at 15 hospitals contributing to the revenue management program in 2017. Clinical and demographic characteristics were described. For each hospitalization, the cost coverage ratio (CCR) was calculated by dividing revenue by estimated cost of hospitalization. Differences in CCR were evaluated using Wilcoxon rank sum tests and results were stratified by billing designation and payer. CCR for OBS and IP stays were compared by institution, and the estimated increase in revenue by billing OBS stays as IP was calculated.

RESULTS

OBS was assigned to 70 981 (56.9%) of 124 789 hospitalizations. Use of OBS varied across hospitals (8%–86%). For included hospitalizations, OBS stays were more likely than IP stays to result in financial loss (57.0% vs 35.7%). OBS stays paid by public payer had the lowest median CCR (0.6; interquartile range [IQR], 0.2–0.9). Paying OBS stays at the median IP rates would have increased revenue by $167 million across the 15 hospitals.

CONCLUSIONS

OBS stays were significantly more likely to result in poor financial outcomes than similar IP stays. Costs of hospitalization and billing designations are poorly aligned and represent an opportunity for children’s hospitals and payers to restructure payment models.

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