ISSUES WITH APC'S and OBSERVATION SERVICES

1. Appropriate and successful emergency department Observation services have been inappropriately grouped, and judged, with other very different services.
2. The current APC cost structure does not cover the costs of providing this service.
3. The current APC rule will worsen health care outcomes
   1. It will increase health care costs for Medicare patients. Without observation, the evaluation of many patients will be shifted from less costly observation units to more costly inpatient setting.
   2. It will adversely effect patient care outcome for Medicare patients. Without observation, many patients will not receive extended evaluation and their diagnosis will be missed.
4. Suggestion:HCFA work with ACEP and SCPCP in studying and assuring fair and appropriate reimbursement for observation services.

1. Appropriate and successful emergency department Observation services have been inappropriately grouped with other very different services. It is not clear that the data used by HCFA to support this decision is representative of the current, or projected, health care environment.

   • Observation may take place in several different health care settings. One example is after scheduled procedures such as surgery or chemotherapy. Observation of patients after an Emergency Department visit is distinctly different from post procedure observation services. Unlike post-procedure patients, Emergency Department patients represent unscheduled visits. Their undifferentiated nature best fit the original description of observation services set forth by HCFA. Emergency Department patients present with a variety of symptoms such as chest pain or abdominal pain that may represent serious conditions, or illnesses such as infection, asthma, or congestive heart failure that require further treatment. Before observation services, the traditional choices after initial Emergency Department management lead to costly inpatient admissions, or inappropriate discharge with adverse outcomes. Unlike the post-procedure patient category, the observation of Emergency Department patients has been extensively studied and shown to have improved outcomes. Many of these studies have been government funded (AHCPR) studies. Improved outcomes include lower costs (usually half when compared to traditional care), better clinical outcomes (fewer missed critical illnesses), and better patient satisfaction.
   • We understand and appreciate concerns expressed by HCFA regarding abuses of observation in the post-operative and inpatient areas. Recognizing these inherent flaws in observation services in these other settings has driven this area of patient care to the emergency department (ED) setting. It is here that observation services, as defined by HCFA, can be provided most reliably. ED observation units do not manage post-operative patients. Unlike inpatient observation status, it would be impossible to keep a patient in an ED observation or chest pain unit for several days to weeks at a time.
   • 1996 data--At that time the new observation / hospital and same date discharge codes (99234-6) did not exist. Observation services occur under three general settings - as post-operative care, inpatient observation status (any inpatient bed), or observation in a dedicated unit (usually in an emergency department setting). Much research has shown the later to be cost effective with improved patient outcomes. Care in the first two settings has not been shown to be beneficial. The 1996 data does not differentiate between what has been successful and what has been a failure.
   • HCFA has not provided evidence that their 1996 cost data is truly a combination of both emergency and observation costs bundled into the same revenue center, as is being proposed for the 99218-99220 CPT codes. It is very unlikely that the 1996 data would be capable of doing this.
   • Because often a dedicated observation unit is functionally a separate unit from an area such as the emergency department, it is unlikely that packaging it where ever it was billed in 1996 data will provide an accurate cost estimate of combining emergency and observation services. As stated, the 1996 data represents observation in very different circumstances and settings.
   • We are pleased that HCFA is willing to study the use of observation as an adjunct to emergency department treatment in conditions such as chest pain. Since the efficiencies and benefits realized with chest pain have also been found for other conditions, we are pleased that HCFA will also consider other conditions. However to collect meaningful data, we recommend continued payment for revenue code 762 while this data is collected prospectively. We also recommend specification of the observation setting as a hospital bed, an observation unit, or a recovery room setting be specified. Specification of the condition being observed should be collected. With this information meaningful data could be collected over a shorter period of time.
2. The current APC cost structure does not cover the actual costs of providing this service.
   • Traditionally these patients would have been admitted and used inpatient resources. Observation of Emergency Department patients has been shown to decrease length of stay by one half to one third of inpatient stays by providing accelerated care up front. This accelerated care represents a significant increase in marginal cost beyond the initial Emergency Department care. These costs come in the form of additional nursing, clerical, support staff for services provided as well as construction costs. Observation units typically staff with a ratio of one nurse per 4 to 8 patients. As the number of patients increase, additional clerical and support staff become necessary. This staffing ratio is comparable to that of a intensive care or step down unit. These staff would not be added were these patients to simply have been admitted. For proper operation, observation rooms require 100 to 150 square feet of floor space with support equipment. As the number of rooms increases a central nursing station is needed. Again, these are costs that would not have been incurred if inpatient admission were chosen.
   • Unfortunately dedicated observation units have very real separate costs for providing services. Cost not covered by the emergency department APC or an inpatient DRG since admissions is usually avoided (80%). By not paying for this service, many units will most certainly close. The alternative will be used, which is inpatient admission. This will increase overall Medicare cost since inpatient care has consistently been shown to be less efficient and more costly than observation. Asking hospitals to provide unfunded care so that HCFA can study their losses incurred will dramatically bias practice pattern toward admission. This will skew the proposed cost data analysis. Additionally, because of the historically slow rulemaking process demonstrated by the outpatient PPS project, a large portion of U.S. observation units will close before all data is collected and analyzed. Subsequently this data will be applied to a changed health care environment for which it is no longer representative.
• We estimate that reimbursement for patients observed in ED's rather than admitted will only cover a small proportion of true costs for providing those services. For example, if we examine the APC reimbursement for a chest pain patients evaluated with ED observation rather than hospital admission. Multiple studies have shown true costs are approximately $1100 per patient. Adding all charges for APC 612, ED level 5 service and observation charges from revenue code 762 and all other charges the total charges should be approximately $2400 (this is the average charges in most studies). The charges are converted to costs by multiplying times the hospital cost to charge ratio, (usually 50 to 55%). If total charges are $2,400 and "costs are $1,100 the cost to charge ratio is 46%. If the average cost of an ED visit is $150 (averaged over all levels including lowest and highest) then 2.5 times $150 is $375. Then Medicare pays additional outlier payment of 75% of the difference between the claim costs and the 2.5 times average cost ($375). Subtract the average cost $375 from the actual cost $1,100, to calculate excess costs at $725. Multiply the $725 by 75% and the total outlier payment is $543. Total payment is the ED APC + Outlier. This covers only 50% of hospital's costs to provide the service.

Table 1: Reimbursement for observation services before and after APC implementation.

3a. The current APC rule will worsen health care outcomes. It will increase health care costs for Medicare patients. Without observation, the evaluation of many patients will be shifted from less costly observation units to more costly inpatient setting.

• Eliminating observation services for Emergency Department patients would clearly not be a cost neutral action. Physicians would revert to the traditional practice of admitting these patients. Several studies have demonstrated the health care saving of observation services. A small sample of savings for conditions is included below *(extrapolation to national health care saving are reported when published):

Table 2. Cost savings realized when Emergency Department based observation is used for various conditions.

*When published data not available, estimated at _ of charges (noted in italics).
**When published data not available, estimated at twice cost savings (noted in italics).

Below are estimates of the increases in costs if chest pain patients are admitted to the hospital rather than observed.

Table 3a. Consequences of eliminating ED-based observation services from APC-based reimbursement: example of chest pain evaluation

Assumptions: Death rate of missed MI is 20%, twice the death rate if patient had been evaluated (observed or admitted). All cost and missed MI information taken from Graff LG et al, Impact on the care of the emergency department chest patient from the Chest Pain Evaluation Registry (CHEPER) Study, Am J Cardiol 1997;80:563-568.

Scenario A: All patients currently observed are admitted.

 

• Physicians make hospital admission decisions based on clinical probability of disease estimates. High to moderate probability of disease patients are admitted to the hospital. Low to intermediate probability of disease patients are released home. When the emergency physician has an observation disposition option, intermediate and moderate probability of disease patients are observed for further evaluation to determine whether hospital admission or release home is the correct decision.

• Some patients are observed whose clinical presentation raises the physician’s concerns to the intermediate to moderate level, e.g., the patient with chest pain with intermediate to moderate probability of acute myocardial infarction. Without observation, these patients will be admitted to the acute care hospital.

• Most admitted patients will not in fact be found to have a serious disease and the hospitalization unnecessary. With observation most of these patients have their condition clarified and they are safely released home without hospitalization. With observation most unnecessary hospital admissions are avoided.

• We appreciate the frank honesty of the respondents in reference to chest pain patients. However, we must respectfully clarify a misstatement made. That most chest pain patients who would require observation are sent to the CCU or ICU for observation. There has been a fundamental change in health care delivery for chest pain patients with respect to the use of CCUs and ICUs that the respondent may not be aware of. One that has been developed through medical research and is practiced widely across the U.S. Historically the CCU was developed over 30 years ago to care for patients with acute myocardial infarction and its associated complications. Over time CCUs became filled with patients at low to intermediate risk for myocardial infarction, most who did not have serious disease. Attempts to expedite inpatient care were repeatedly met with failure, with average inpatient stays of 2 to 3 days under the best circumstance. It has been found that these patients can be managed at least as effectively, at greater than half the cost, and in roughly 12 to 18 hours in an ED observation unit setting. This has been shown in several studies, and published in several major journals. Some were government funded (AHCPR) studies. Over time this approach has been embraced and encouraged by health care providers and payers. A move back in time to having these patients sent to the CCU or ICU will certainly increase health care costs. This approach has also been shown to decrease missed heart attacks and improve patient satisfaction. These benefits would also be lost. It would be our pleasure to discuss this point further.
• We are pleased that HCFA is willing to study the use of observation as an adjunct to emergency department treatment in conditions such as chest pain. Since the efficiencies and benefits realized with chest pain have also been found for other conditions, we are pleased that HCFA will also consider other conditions. However to collect meaningful data, we recommend continued payment for revenue code 762 while this data is collected prospectively. We also recommend that specification of the observation setting as a hospital bed, an observation unit, or a recovery room setting is specified. Specification of the condition being observed should be collected. With this information meaningful data could be collected over a shorter period of time.

Shift patients from observation units to inpatient units will also decrease patient satisfaction and quality of life due to the prolonged inpatient hospitalization

• While patient satisfaction and quality of life may not have clear monetary value when considering payment policy, it is clear that eliminating observation units will worsen patient satisfaction. By not institutionalizing a patient for several days in the hospital, patients are more satisfied with the care, and are able to return to their daily routine sooner. This has been shown for observation patients.

3b. The current APC rule will worsen health care outcomes. Without observation, many patients will not receive extended evaluation and their diagnosis will be missed

• Not providing facility reimbursement codes for observation services would create a powerful disincentive for hospitals providing observation services. This would in effect eliminate observations units. For several conditions, eliminating observation services would lead to more missed diagnoses (myocardial infarction, appendicitis, sepsis, etc), poor treatment outcomes (asthma, congestive heart failure, infections, GI bleeding), and worse patient satisfaction (chest pain, asthma).

• The Institute of Medicines’ report on errors in health care has been met by much public enthusiasm. Chest Pain Observation Units have been shown to lead to a ten-fold decrease in the rate at which myocardial infarction is missed and sent home. Myocardial infarction being the leading cause of death in the U.S. If changes in the current rule are not made, then their impact on errors in medicine must also be considered and measured.

• By using increasingly stringent admission criteria (such as Intequal), which refuse more and more inpatient admissions yet allow observation, then refusing to provide reimbursement for observation - HCFA is creating a growing void into which patients and hospitals will suffer. It creates a large, and growing, patient population who are too sick to go home but not sick enough to be admitted. Keeping them in the emergency department for up to 24 hours of uncompensated care will create an enormous financial burden, leading to hospital closures and gridlock in emergency departments. On the other hand discharge will certainly lead to poor health care outcomes. This will only further weaken the nations only health care safety net, the emergency department. The current APC creates an untenable position where hospitals and physicians will be faced with selecting one poor outcome or the other.

• Physicians make hospital admission decisions based on clinical probability of disease estimates. High to moderate probability of disease patients are admitted to the hospital. Low to intermediate probability of disease patients are released home. When the emergency physician has an observation disposition option, intermediate and moderate probability of disease patients are observed for further evaluation to determine whether hospital admission or release home is the correct decision.

• Some patients are observed whose clinical presentation raises the physician’s concerns to a low or intermediate level, e.g. the patient with chest pain with low to intermediate probability of acute myocardial infarction. Without observation, these patients are released home after the emergency department evaluation. Some of these patients have acute myocardial infarction with an atypical presentation. Thus the diagnosis is missed in 2% to 5% of acute MI patients when the physician does not have access to observation. When these acute MI patients are inadvertently released home, 10% to 21% die. With observation, the missed diagnosis rate is less than 0.5% and thus most preventable deaths are avoided.

• If patients are released home rather than observed, adverse outcomes of missed diagnoses aand morality will result.

Table 3b. Consequences of eliminating ED-based observation services from APC-based reimbursement: example of chest pain evaluation

Assumptions: Death rate of missed MI is 20%, twice the death rate if patient had been evaluated (observed or admitted). All cost and missed MI information taken from Graff LG et al, Impact on the care of the emergency department chest patient from the Chest Pain Evaluation Registry (CHEPER) Study, Am J Cardiol 1997;80:563-568.

Scenario B: All patients currently observed are sent home.

Suggestion: HCFA work with ACEP and SCPCP in studying and assuring fair and appropriate reimbursement for observation services.

By eliminating reimbursement for observation services while it is being studied, HCFA is effectively penalizing physicians and hospitals for attempting to provide cost-effective health care when the opportunity arises. Without separate revenue, observation units will not be able to operate and progress made in this area of medicine over the last ten years will suffer greatly.

• By eliminating reimbursement for observation services while it is being studied, HCFA will halt the refinement of an ED patient care service. Emergency observations services have undergone tremendous refinement and growth recently. All to the benefit of ED patients and payers. Recent studies have shown that roughly 22% of metropolitan Emergency Departments have a specific type of observation unit called a Chest Pain Center. It is estimated that a much greater percentage (27 to 40%) have a general Emergency Department Observation Unit. Eliminating facility reimbursement for operation of these units would have a dramatic adverse effect on U. S. Emergency Departments. 

REFERENCES:

Savings of Observation:

1. Chest pain -- 0.5 billion (Nichols G, Walls R, Goldman L, et al; A critical pathway for management of patients with acute chest pain who are at low risk for myocardial ischemia: recommendations and potential impact. Ann Int Med 1997;127:996-1006.)
2. CHF -- 5.0 billion (Butler J, Hanumanthu S, Chomsky D. Frequency of Low-Risk Hospital Admissions for Heart Failure. Am J of Card 1998;81:41-44.)
3. Infections -- 1.0 billion nationally, $1,025 cost savings per case (Roberts RR, Flemming, J, Mensah E, et al. Outcomes of Emergency Department Based Accelerated Treatment Protocol Therapy of Infectious Disease Patients. Acad Emerg Med 1997:4(5);517)
4. Asthma - $1,045 cost savings per case (McDermott M, Murphy D, Zalenski R, et. al. A Comparison Between Emergency Department Diagnostic and Treatment Unit and Inpatient Care in the Management of Acute Asthma. Arch Intern Med 1997;157:2055-2062.)
5. Pneumothorax - $4,244 charges saving per case (Vallee P, Sullivan M, Richardson H, et al. Sequential Treatment of Simple Pneumothorax. Ann Emerg Med 1988;17:936-942.)
6. CHF - $2,348 charges saving per case (Graff L, Observation Medicine (Andover Medical Publisher), 1993, Chapter 23: p.280, Congestive Heart Failure, Dunbar L)
7. Upper-Gastrointestinal Bleeding - $2,943 cost saving per case (Tham K-Y, Kimura H, Nagurney T, et al. Retrospective Review of Emergency Department Patients with Nonvariceal Upper-Gastrointestinal Hemorrhage for Potential Outpatient Management. Ann Emerg Med 1998;32:S20.)

Other:

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6. Tatum JL, Jesse RL, Kontos MC, et al. Comprehensive strategy for the evaluation and triage of the chest pain patient. Ann Emerg Med. 1997:29;116-25.
7. Gibler WB, Runyon JP, Levy RC, et al. A rapid diagnostic and treatment centre for patients with chest pain in the emergency department. Ann Emerg Med. 1995;25:1-8.
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35. Tatum JL, Jesse RL, Kontos MC, et al. Comprehensive strategy for the evaluation and triage of the chest pain patient. Ann Emerg Med. 1997:29;116-25.
36. Gibler WB, Runyon JP, Levy RC, et al. A rapid diagnostic and treatment centre for patients with chest pain in the emergency department. Ann Emerg Med. 1995;25:1-8.
37. Mikhail MG, Smith FA, Gray M, et al. Cost-effectiveness of mandatory stress testing in chest pain centre patients. Ann Emerg Med. 1997;29:88-98.
38. Gomez MA, Jefferey LA, Karagounis LA, et al. An emergency department based protocol for rapidly ruling out myocardial ischemia reduces hospital time and expense: results of a randomized study (ROMIO). J Am Coll Cardiol 1996:28;25-33.
39. Farkouh ME, Smars PA, Reeder GS, et al. A clinical trial of a chest-pain observation unit for patients with unstable angina. N Engl J Med. 1998:339;1882-8.
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