Research Alert: October 22, 2014

Observation Care Services

Observation Care Services for Medicare Beneficiaries in Rural Hospitals: Policy Issues and Stakeholder Perspectives

Describes the findings of a qualitative study aimed to gain a greater understanding of the rural policy context surrounding the use of observation care services by Medicare beneficiaries from 2010 to 2013.

• Although Medicare rules for hospital outpatient observation care services are, by law, uniformly applied in urban and rural communities, differences in rural demography and service capacity can create greater hardships for rural beneficiaries.
• Respondents reported that hospitals in their states experienced greater operating costs than Medicare allows for observation care services.
• Respondents reported that hospitals in their states were experiencing significant costs resulting from denied claims and the preparation for and response to federal audit requests.

Describes the use of observation services across levels of rurality by Medicare beneficiaries in CAHs, the demographics and health status of patients receiving these services, and the characteristics of their observation stays.

• Approximately 74% of rural CAHs placed patients under observation status in 2010.
• CAHs in small-rural and isolated-rural locations tended to keep patients under observation for shorter periods of time than CAHs in large-rural areas.
• CAHs in isolated-rural locations performed significantly fewer procedures per day and were associated with lower per diem provider reimbursement levels and patient out-of-pocket costs.
• CAH observation patients in isolated-rural areas were significantly more likely to be admitted as an inpatient and less likely to be discharged to a SNF. Admitted patients were also more likely to be transferred to another hospital (79.3% isolated rural vs. 69.6% for all rural areas).

Additional Resources of Interest:

• More information about the University of Minnesota Rural Health Research Center