Challenged by the status determination process, many hospitals often inappropriately admit patients into observation or inpatient status. The nature of the challenge is illustrated in the exhibit below, which shows that observation rates among different CMS regions vary by as many as 8 percentage points.

Fee-for-service Medicare observation rates by CMS

An acute care hospital cannot begin to be able to deliver cost-effective care if it lacks a fully coordinated approach for moving patients from admission to discharge.

Lower admissions. Higher patient days. Longer-than-average length of stay (LOS) in acute care. These are among the significant challenges U.S. acute care hospitals face as a result of the COVID-19 pandemic.

This problem is in part a consequence of the processes and protocols hospitals put in place to keep patients and staff safe throughout the pandemic. But it was exacerbated by the unanticipated challenges of personal protective equipment (PPE) shortages and significant increases in agency staffing and associated costs. Amid these challenges, it has become critical for hospitals to find ways to reduce LOS and enhance patient throughput. Only through such effort can they ensure their future financial and operational success and fully realize their mission of caring for the patients in their communities.

Since the start of the pandemic, hospitals have struggled to deliver care to patients in a timely manner. Dealing with longer stays in the hospital has cut into their inability to accept transfers. Meanwhile, patients face long waits in the emergency department (ED), as operational constraints have made it extremely difficult for hospitals to achieve the four-hour turnaround time for patients in the ED recommended under Medicare guidelines.

Moreover, patients who await discharge to a post-acute care setting can expect to spend significantly longer in the hospital than those awaiting discharge to the home-care setting. There are three fundamental reasons for this difference:

• An increased number of payers require prior authorization for discharge to post-acute care.
• Staffing shortages in care management departments make it more difficult for hospitals to prepare patients for discharge to the post-acute care environment.
• Most communities have limited resources to meet the increased demand for post-acute care facilities, given that both hospitals and post-acute care facilities are contending with the same staffing challenges.

These barriers, combined with supply shortages and rising input costs on labor, make maintaining effective patient throughput in short-term acute care facilities an operational puzzle for administrators of these facilities.

Hospital finance leaders have a meaningful role to play in solving this puzzle. But to fulfill that role, they must clearly understand what is involved in patient throughput, including the people and processes that are needed to ensure patients do not encounter bottlenecks on their journey from hospital admission to discharge. These considerations are addressed in the sidebar — {design: state location of sidebar}. With this understanding, finance leaders can begin to advocate best practices that can enable a hospital to optimize patient throughput, thereby ensuring patients have a positive experience with their hospital care.

There are many solutions for addressing the barriers that arise throughout a patient’s hospital journey. Reducing LOS and improving patient throughput requires attention not only to the basic process steps involved with moving patients through the hospital but also to considerations around clinical variation and care management. These interlocking factors are depicted in the exhibit below.

The foremost concern is ensuring the patient receives the right care. Patients who have been assigned the wrong status may experience delays in treatment because of requirements imposed by their payers or because the diagnosis on which the patient’s status is based is of lower priority than the diagnosis that more appropriately describes the patient’s condition. Confirming that the patient is in the right status at the right time allows for the appropriate treatment to begin at the right moment. Moreover, ensuring the patient is in the right status from the point of entry helps to prevent confusion over copays, deductibles and out-of-pocket expenses once the patient leaves the hospital, regardless of the setting.

It is important to see throughput as a journey, not a destination. Although clinicians must take the lead, the ability to effectively address throughput challenges requires a team-based approach involving participation by the care team, operations, finance and transport.

Finance leaders can play an important role by advocating for adoption of five leading practices that efficient hospitals use daily to promote effective throughput, described below and depicted in the exhibit below.

1 Operations huddle. The house operations huddle should be held in the morning, after shift change. Executives should attend this huddle for escalation purposes, while directors from all departments report out constraints they expect for the day, assess house-wide bed availability and address staffing shortages and safety and quality issues.

2 Patient progression rounds. The next step in the throughput cycle is for care team members to participate in unit-based patient progression rounds, with the goal of reviewing each patient’s treatment plan, discharge objectives and barriers to discharge. The entire care team must participate in this process to ensure patients will appropriately progress through their care while also being prepared for discharge. Once the day’s rounds are completed, the care team will be able to identify how many patients will be discharged that day and mitigate any barriers to those discharges.

3 Afternoon unit huddle. In the afternoon, care teams should gather for unit-based afternoon check-ins. This huddle gives each team an opportunity to quickly follow up on the action items from rounds, touch base on discharges expected later in the day and inform unit leaders of specific discharge barriers requiring their intervention.

4 RTDC meeting. Once the unit leaders have resolved the barriers to the extent possible, the larger team gathers for a second house-wide huddle, called the real-time demand capacity planning meeting (RTDC). The goal of the RTDC is to communicate where the remaining bottlenecks to patient throughput are and immediately address them with the appropriate leaders. Unit-based leaders should report out remaining discharges for the day, to enable transport managers to appropriately schedule the discharges and ensure requisite staff will be available. Outstanding constraints from the morning bed-huddle should be followed up during this meeting. Staffing should be addressed, test results expedited and preparations for morning discharges begun as well.

5 Night shift handoff. At end of the day, during shift change, discharge directives must be incorporated into handoff. Identifying a discharge readiness assessment and/or process into shift change continues the throughput cycle from day into night. The better the night shift understands throughput and feels the urgency to plan for discharge, the more efficient the hospital will be in continuity of its throughput. Although it may seem that a great deal of time is being spent on managing the movement of patients, it is time well spent, because  next to patient safety, it is the care team’s most important responsibility.

In addition to these proposed solutions, hospital finance leaders should devote attention to other ways that hospitals can reduce LOS and streamline throughput, including:

• Focusing on improving care of patients with complex conditions who typically have long LOS
• Advocating for reducing clinical variation through development of pathways and protocols for standardized disease states
• Collecting data to track and trend discharge barriers, to continuously work toward the removal of common barriers to discharge

These solutions and leading practices are just a few pieces to the larger puzzle that hospitals must solve to improve operations and efficiencies. Success in managing throughput will remain elusive, however, without the understanding and support of the entire organization, where everyone is working toward a common goal. The pandemic may have made this truth more evident, but it remains fundamental to the success of our healthcare system under all circumstances.

Patient throughput in the hospital is more than just admission to discharge for each patient. It also is everyone’s responsibility in the hospital setting. And it poses a particular challenge when one considers that patients can arrive at any of multiple portals of entry, each with their own admission protocols.

Consider the following scenario of a medical inpatient.

This patient arrives in the emergency department (ED). The emergency medicine providers determine the patient will be admitted as an inpatient to a med/surg floor – technically, this patient’s inpatient throughput timer begins when the provider writes the admission order.

Once the patient is transferred to the inpatient unit, hospitalists and specialists begin working to determine a diagnosis and projected prognosis for the patient. At the same time, the case management/discharge planner is learning about patient’s circumstances and the extent to which family support is available, while the therapy team is assessing the patient for additional discharge needs.

Once a preliminary diagnosis is assigned to a patient chart, the diagnosis corresponds to an expected geometric mean length of stay (GMLOS) per CMS. The care team continues to work together toward an expected discharge date, which should align with the expected LOS. It is important to note that a diagnosis may not be assigned to the patient until they are nearly two days into their stay. It therefore is crucial for the care team to know how long a typical patient stay would be based on the projected diagnosis, to proactively plan for discharge when no GMLOS is available.

Throughput is the backbone for hospital LOS. It is critical to have systemwide, multidisciplinary buy-in to throughput, with all care team members being focused on treating the patient and transitioning them to the next level of care. A hospital’s ability to get patients in and out of the hospital is critical to hospital operations. In today’s environment, hospitals are experiencing a high demand in the ED as well as for elective procedures that were postponed during the pandemic and transfers requiring a higher level of care. Without efficient processes and operational support to help drive throughput, hospitals will experience significant constraints.

Efforts to reduce LOS have both financial and quality implications. For payers that pay per a diagnostic-related group schedule, that payment amount reflects the patient’s expected level of care based on their diagnosis. Meeting the expected LOS ensures the payment will cover the cost of caring for the patient, and it will create capacity that ultimately allows the hospital to continue delivering care to other patients in the community.

Reduced LOS also is beneficial to the patient receiving care. Research shows that the longer patients stay in the hospital, the more susceptible they are to unsafe conditions, putting them at risk for hospital-acquired conditions and other complications. These are negative quality indicators for the hospital, as well.  Efficient patient care, coupled with clear communication, are paramount not only to moving patients efficiently from admission to discharge, but also enhancing the overall patient experience. As the exhibit below shows, short-term acute care hospitals in the 20th percentile in terms of quality are able to discharge a high percentage of patients to home or self-care.

Placing a patient in the most appropriate level of care is important to ensure the patient is cared for with the right level of services and the hospital is reimbursed appropriately for services rendered. However, many hospitals are challenged by the status determination process, and often over utilize the observation level of care. According to publicly available Medicare data, the national average observation rate (the ratio of bedded observation to inpatient cases) was 18% in 2019. The state average observation rate for Illinois facilities in the same period was 25%. This means that most short-term acute care facilities in Illinois had an observation rate that exceeded the national average (Figure 1). There are considerable financial implications to patient discharge status, which often results in missed revenue. Hospitals and health systems should consider implementing status determination process improvements to augment net patient revenue while prioritizing patient outcomes.

Observation status is an outpatient designation that allows providers to place a patient in an acute care setting to monitor the need for an inpatient admission. Common signs and symptoms including chest pain, shortness of breath, nausea/vomiting/stomach pain and fever might result in placement in observation for further testing. Appropriate observation patients typically have much lower acuity and severity of illness compared to inpatient level of care, and are commonly discharged from the facility in observation status within 24-36 hours.

A bedded observation patient can also be appropriately converted to inpatient status if there is evidence of medically necessary care. “Medical necessity”, the principle defined by CMS and other payors, establishes the distinction and substantiating evidence between observation and inpatient levels of care. Medical necessity is documented within the medical record, and should clearly and precisely illustrate the complexity of medical factors and the reasoning for the required inpatient admission (Figure 2). Inadequate documentation can result in payor denial for inpatient authorization and refusal of payment for services delivered. Physician documentation is the cornerstone for appropriate status determination, and there can be significant financial implications to the chosen level of care.

Delivery of care and outcomes are the priority. But appropriate patient status and level of care determination can significantly affect net revenue. Payor reimbursement (for both government and private payors) typically differs considerably between observation and inpatient status. While the nuances of payor agreements may vary across payors and facilities, reimbursements for observation discharges are often lower than inpatient payments While this reimbursement differential can vary, a typical Traditional Medicare case can provide an illustrative example. CMS IPPS and OPPS final rules stipulates that a standard inpatient case is reimbursed approximately $6,500, while a standard observation discharge is reimbursed approximately $2,000. In this example, there is approximately a $4,500 reimbursement variance for a case that might have received the exact same care, but was discharged in an inappropriate status. This positive reimbursement variance is similarly prevalent with other government and private payors. Across most payors, documentation of medical necessity and deliberate processes for status determination can have a significant impact on net patient revenue.

Appropriate patient status determination and discharge status can also have significant financial implications for the patient. A discharge from observation status may result in a higher out-of-pocket expense to the patient compared to an inpatient discharge. Since observation status is an outpatient service, a Medicare patient pays 20% of billed charges for coinsurance.

There are several ways that a facility can align care delivery and revenue cycle functions through level of care and status determination processes.

Care Team Collaboration
Collaboration and communication among the care team members (providers, utilization management, and nursing staff) is critical to a successful observation management program. This includes deliberate discussions regarding patient needs and plan of care between care teams. This also includes documentation within the medical record that clearly substantiates the medical necessity. A dedicated huddle to focus on observation patients also enables communication and collaboration. This observation huddle serves as a forum for Case Management, Utilization Management and Physician Advisors to review all observation patients at least once per day and is an effective method to highlight any barriers to discharge, necessary follow-up actions, and status conversion potential.

Status Determination at the Portal of Entry
Appropriate status determination from the Emergency Department reduces the need for conversion to an inpatient status later in the stay and helps place the patient in an appropriate care setting. Facilities with leading patient status processes dedicate Case Management/Utilization Management staff in the emergency department to own the initial status determination process. These staff should be integrated into a collaborative process between ED providers and hospitalists that focuses on effective communication, accurate initial medical necessity reviews, and timely provider documentation of patient needs and acuity.

Utilization of Observation Units
When observation cases are bedded on inpatient units, care teams often have difficulty differentiating between patients placed in observation status or inpatient status. This results in longer lengths of stay for observation cases, and increased resource utilization for observation care. A hospital can delineate patient status assignments by implementing a unit focused exclusively on observation patients. Sometimes these units are within or adjacent to emergency departments. This enables the care team to automatically differentiate observation patients from other bedded patients. It also allows for increased monitoring of observation patients (recommended rounding 3x per day vs 1x per day). Sometimes facilities will introduce diagnosis-specific algorithms to aid in this colocation process, including chief complaints such as chest pain, syncope and collapse, heart disease, cellulitis, and headaches. If a dedicated observation unit is not possible, providers and transfer centers should attempt to cohort observation patients as much as possible.

Physician Advisor Integration
A sophisticated Physician Advisor (PA) program utilizes the PA resource as an engaging liaison between Case Management, Utilization Management, providers, and administration. The PA can aid in the status determination process through secondary review of the observation cases, and can assist the UM team and providers through the documentation process. The PA may also be involved in additional processes including payor appeals, denials management, education for providers, and other quality improvement efforts.