Association of Observation Stays with Clinical Outcomes and Costs in Medicare: An Instrumental Variable Analysis

Background

Observation stays in Medicare have grown over the last 15 years, yet limited research exists on how observation may impact outcomes for older adults.

Objective

To examine the relationship of an observation stay with 30-day hospital returns, total acute care days post-discharge, mortality, and out-of-pocket costs, compared to an inpatient admission.

Design

Retrospective cohort study using instrumental variable analysis.

Participants

A 20% sample of US Medicare beneficiaries admitted to acute care with a length of stay < 5 days between 2009 and 2019.

Interventions

Observation stay vs inpatient admission.

Main Measures

Unplanned hospital return within 30 days, total 30-day post-discharge acute care days, 30-day mortality, and 30-day acute care out-of-pocket spending.

Key Results

A total of 3,958,377 hospitalizations met study criteria, of which 1,656,631 (42%) were observation stays and 2,301,746 (58%) were inpatient admissions. Compared to inpatient admissions, observation stays were associated with a 4.39 percentage point (95% confidence interval [CI] 3.56%, 5.22%) higher rate of 30-day unplanned hospital returns, but no difference in total 30-day post-discharge acute care days (difference − 0.02 days; 95% CI − 0.08, 0.03), no difference in 30-day mortality (difference 0.20 percentage points; 95% CI 0.00, 0.40), and lower 30-day out-of-pocket costs (difference − $552; 95% CI − $561, − $542).

Conclusions

Among Medicare beneficiaries hospitalized for fewer than 5 days, observation stay was associated with higher rates of 30-day unplanned hospital returns compared to inpatient admission. However, we simultaneously observed lower out-of-pocket costs among those hospitalized under an observation stay. The mixed results suggest that additional research and engagement with relevant parties is needed to optimize observation stay policy.