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Better Use Of Dedicated Hospital Observation Units Could Save $3.1 Billion A Year

September 26th, 2012

The rising demand for acute care has caused more crowding in emergency departments (EDs) in US hospitals. Because hospital care accounted for more than 30 percent of total 2009 health care expenditures, alternative solutions are badly needed to bring costs under control. A hospital observation unit—a dedicated space usually near or within an emergency department, which about one-third of hospitals have—can be a viable alternative to an inpatient admission for many patients who cannot be safely discharged to their homes following an emergency department visit.

In what is believed to be the first attempt to quantify the potential financial impact of observation unit expansion, a new Web First study from Health Affairs estimates that, on average, adding an observation unit could save a hospital with sufficient ED volume $4.6 million per year. If all hospitals with adequate ED volume that do not have such units added them and ran them at benchmark levels of efficiency, the nation could save $3.1 billion in health costs annually.

Christopher Baugh from Brigham and Women’s Hospital and coauthors conducted a systematic literature review to find the average cost savings per observation unit visit; they used national survey data to estimate the number of hospitals with sufficient ED visits to justify acquiring a dedicated observation unit. “The wider use of observation units may create cost savings and should be a model for acute care redesign to increase value in the US health care system,” the authors conclude.

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2 Responses to “Better Use Of Dedicated Hospital Observation Units Could Save $3.1 Billion A Year”

  1. Robert Says:

    The problem with your assessment is that you fail to account for using less intensive resources for providing a lower level of care (outpatient versus inpatient), less exposure to other hospital hazards for patients not needing to be on an inpatient unit, and the ability to place truly sick patients in inpatient beds by removing less sick patients and putting them in a more appropriate care setting. Those are the elements that lead to the cost savings without necessarily reducing staff. On the other hand, if hospital staffs are bloated in order to provide intensive inpatient care to people who don’t need it, we have a problem that needs to be addressed.

  2. sjdavidson Says:

    You are more accurate when you assert the “nation could save $3.1B in health costs annually” than when you suppose “save a hospital $4.6M per year”. In most cases, the hospital is providing the same level of service regardless, just no longer getting paid the same. Short stays (<23 hours) up on the medical floors or down in an ER observation unit are being cared for with similar resources.

    Converting admissions to observation stays when the patient requires the same clinical activities but we no longer get a full DRG, only an ER outpatient level payment–a substantial problem. Perhaps if staff were laid off and units closed, then costs would be reduced, but this rarely happens because the threshold for it to happen requires many interventions, not a single program.

    Some are trying to get CMS and commercial insurers to offer a more reasonable payment for “observation” level services because without such a rate somewhere between the full DRG and the outpatient visit, no hospital will be able to survive. The cost of the “observation” care exceeds the outpatient-level reimbursement.

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