Resource Utilization for Observation-Status Stays atChildren’s Hospitals

WHAT’S KNOWN ON THIS SUBJECT: Hospitalizations underobservation status are presumed to be shorter and less resource-intensive, but utilization for pediatric observation-status stays hasnot been studied.

WHAT THIS STUDY ADDS: Children’s hospitals use observationstatus with great variation. Resource utilization for pediatricpatients under observation status overlaps substantially withinpatient-status utilization, calling into question the utility ofsegmenting pediatric patients according to billing status.

abstractBACKGROUND AND OBJECTIVE: Observation status, in contrast to inpa-tient status, is a billing designation for hospital payment. Observation-status stays are presumed to be shorter and less resource-intensive,but utilization for pediatric observation-status stays has not beenstudied. The goal of this study was to describe resource utilizationcharacteristics for patients in observation and inpatient status ina national cohort of hospitalized children in the Pediatric HealthInformation System.

METHODS: This study was a retrospective cohort from 2010 of obser-vation- and inpatient-status stays of #2 days; all children wereadmitted from the emergency department. Costs were analyzed anddescribed. Comparison between costs adjusting for age, severity, andlength of stay were conducted by using random-effect mixed modelsto account for clustering of patients within hospitals.

RESULTS: Observation status was assigned to 67 230 (33.3%) dis-charges, but its use varied across hospitals (2%–45%). Observation-status stays had total median costs of $2559, including room costsand $678 excluding room costs. Twenty-five diagnoses accounted for74% of stays in observation status, 4 of which were used for detailedanalyses: asthma (n = 6352), viral gastroenteritis (n = 4043),bronchiolitis (n = 3537), and seizure (n = 3289). On average, afterrisk adjustment, observation-status stays cost $260 less thaninpatient-status stays for these select 4 diagnoses. Large overlapsin costs were demonstrated for both types of stay.

CONCLUSIONS: Variability in use of observation status with large over-lap in costs and potential lower reimbursement compared with inpa-tient status calls into question the utility of segmenting patientsaccording to billing status and highlights a financial risk for institu-tions with a high volume of pediatric patients in observation status.Pediatrics 2013;131:1050–1058

AUTHORS: Evan S. Fieldston, MD, MBA, MSHP,a Samir S.Shah, MD, MSCE,b Matthew Hall, PhD,c Paul D. Hain, MD,d

Elizabeth R. Alpern, MD, MSCE,a Mark A. Del Beccaro, MD,e

John Harding, MBA,f and Michelle L. Macy, MD, MSg

aThe Children’s Hospital of Philadelphia and Department ofPediatrics, Perelman School of Medicine at the University ofPennsylvania, Philadelphia, Pennsylvania; bCincinnati Children’sHospital and Medical Center and Department of Pediatrics,University of Cincinnati School of Medicine, Cincinnati, Ohio;cChildren’s Hospital Association, Overland Park, Kansas;dChildren’s Medical Center of Dallas and Utah SouthwesternMedical Center, Dallas, Texas; eSeattle Children’s Hospital andDepartment of Pediatrics, University of Washington School ofMedicine, Seattle, Washington; fAll Children’s Hospital, StPetersburg, Florida; and gC.S. Mott Children’s Hospital andDepartment of Emergency Medicine and the Child HealthEvaluation and Research Unit, Division of General Pediatrics,University of Michigan School of Medicine, Ann Arbor, Michigan

KEY WORDShealth care finance, hospital costs, hospitalization, hospitalizedchild, observation status, patient admission, patient discharge,pediatric hospital

ABBREVIATIONSAPR-DRG—All Patient Refined Diagnosis Related GroupsE/M—evaluation and managementLOS—length of stayPHIS—Pediatric Health Information System

Dr Fieldston conceptualized and designed the study, assistedwith data analysis, reviewed and revised the manuscript,critically reviewed the manuscript, and approved the finalmanuscript as submitted; Drs Shah, Hain, Alpern, and Macyassisted in conceptualizing and designing the study, assistedwith data analysis, reviewed and revised the manuscript,critically reviewed the manuscript, and approved the finalmanuscript as submitted; Dr Hall conducted the initial dataextraction and analyses, wrote sections of the manuscript,reviewed and revised the manuscript, and approved the finalmanuscript as submitted; and Dr Del Beccaro and Mr Hardingassisted in conceptualizing and designing the study, assistedwith data analysis, reviewed and revised the manuscript, andapproved the final manuscript as submitted. Dr Hall had fullaccess to all the data in the study and takes responsibility forthe integrity of the data and the accuracy of the data analysis.

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In 1983, with the introduction of theMedicare prospective payment system,reimbursement for inpatient serviceswas restructured to encourage efficiencyby providing a predetermined, fixedpayment to hospitals for care of adultswithin diagnosis-related groups regard-less of length of stay (LOS).1 Over theensuing years, the concept of “observa-tion status” emerged as a designa-tion for patients not meeting inpatientdiagnosis-related group criteria anddeemed by payers to be in a stateof clinical decision-making betweendischarge-to-home and admission-to-inpatient status.2 Observation status isconsidered to be “outpatient” or “am-bulatory” for evaluation and manage-ment (E/M) coding, even if the stay is inan inpatient bed and extends past 24 to48 hours for Current Procedural Termi-nology coding.3 The concept of obser-vation status spread to non-Medicarepayers to include pediatric hospital-izations.

Observation status is a billing desig-nation for both hospital and physi-cian payments, with reimbursementtypically lower compared with inpa-tient status because observation-status stays are presumed to be lessresource-intensive. Observation statusis determined by payers, typically byusing criteria provided by InterQual4

and Milliman,5 which differ from eachother, adding to the inconsistency. But,providers caring for observation-status patients may not differentiatethem from inpatient-status patients.6,7

The care team may not know the bill-ing status during hospitalization. In-consistent application of billing statusmay lead to patients of the samecomplexity and LOS, with the sameresource utilization, being coded asobservation status in 1 hospital andinpatient status in another hospital oreven within the same hospital.

To understand the potential impact ofpediatric observation-status stays on

hospital finance, we sought to de-scribe resource utilization of pediatricobservation-status stays at freestand-ing children’s hospitals. An improvedunderstanding of pediatric patientsin observation billing status is neededto help guide clinicians, hospitaladministrators, regulators, and policymakers, particularly in the face ofimpending Medicaid audits of inpatientbilling similar to the Medicare Re-covery Audit Contractor program.8

Our specific aims were to describe theresource utilization for observation-status stays compared with inpatient-status stays with similar LOS anddiagnoses. We hypothesized that noclinically significant difference in re-source utilization will be present whencomparing observation-status withinpatient-status hospitalizations ofsimilar LOS and diagnoses.

METHODS

Study Design and Data Source

Data for thismulticenter retrospectivecohort study were obtained from thePediatric Health Information System(PHIS), which contains demographicand resource utilization data from43 freestanding children’s hospitals.Participating hospitals are located innoncompeting markets of 27 statesplus Washington, DC, and account for20% of all pediatric hospitalizations inthe United States. The PHIS databasecontains billed charges for each hos-pitalization. Each of these billed clin-ical activities can be assigned astandardized cost, derived from themedian cost across all PHIS hospitalsfor that service.9,10 In this way, re-source utilization can be comparedwithout biases arising from usingcharges or costs estimated by usingthe cost-to-charge ratio. Data are de-identified before inclusion. The Child-ren’s Hospital Association (formerlyChild Health Corporation of America)(Overland Park, KS) and participating

hospitals jointly assure data quality.11,12

In accordance with the Common Rule(45 CFR 46.102[f]) and the policies of TheChildren’s Hospital of Philadelphia in-stitutional review board, this study, us-ing a de-identified data set, was notconsidered human subjects research.

Study Participants

Of the 43 hospitals in PHIS, 33 reporteddata from observation-status andinpatient-status stays, and analyseswere limited to these hospitals. The 10hospitals not included did not reportany patients in observation status.Patients admitted to observation orinpatient status during the calendaryear 2010 from the ED and who stayed#2 days (ie, crossed no more than 2midnights and defined as integerdays) were included, representing97.8% of all observation-status stays.We purposely limited our study tostays of #2 days, not only because ofthis preponderance of data but alsobecause the Center for Medicare &Medicaid Services defines observa-tion status as typically ranging from 24to 48 hours.13,14 We then comparedobservation-status stays with a corre-sponding cohort of inpatient-statusstays of#2 days (47.5% of all inpatient-status stays). Patients who spent anytime in an ICU were excluded becauseICU care does not seem consistent withthe intent of observation status (al-though there were 342 [0.3%] patientswith LOS#2 days who had observationstatus billing with an ICU charge).Patients who died during the hospital-ization were excluded.

Data Analysis

Patient stays were categorized into AllPatient Refined Diagnosis RelatedGroups (APR-DRGs), version 24.15 Wedescribed patient visit and resourceutilization characteristics, includingfor patients: age, gender, race, payer,LOS, total costs, costs grouped

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according to category (imaging, labo-ratory, pharmacy, supply, clinical,room, and other), and severity of ill-ness based on APR-DRG. For hospitals,the following factors are described:payer mix, percentage of patients whoare complex (those with complexchronic conditions, neurologic con-ditions, or technology dependence),16,17

and percent surgical cases. APR-DRGswere ordered according to frequency.The top 25 APR-DRGs (Supplemental Ta-ble 3) in the observation-status listwere used to generate a corre-sponding list of inpatient-statusstays meeting inclusion/exclusioncriteria. Costs, both including andexcluding room costs, were com-pared for observation and inpatientstatuses in aggregate for this list of25 APR-DRGs. We separated roomfrom nonroom charges to specifi-cally evaluate clinical needs ofpatients. In addition, room costs canoverwhelm other costs, making thisseparation important for effectiveanalysis of resources used for care.Among the top 25 APR-DRGs forobservation-status stays, 4 commondiagnosis groups with clinical rele-vance and known validity of codingwere chosen for detailed analysis:asthma (no. 1), gastroenteritis (no.2), bronchiolitis (no. 4), and seizure(no. 5). Within these 4 conditions, wecompared costs associated withobservation-status versus inpatient-status stays matched on APR-DRGusing random-effect mixed modelsto account for clustering of patientswithin hospitals. We risk-adjustedthe cost models by using APR-DRGseverity of illness, age, and LOS andproduced least squares means fromthe resulting models. We hypothe-sized that no clinically significantdifference in resource utilization, asmeasured by using costs, would bepresent when comparing observation-status with inpatient-status hospital-izations. We tested our hypothesis for

total cost with and without room costsand for each cost category. Statisticalanalysis was performed in SAS version9.3 (SAS Institute, Inc, Cary, NC), and Pvalues,.05were considered statisticallysignificant.

RESULTS

Sample Characteristics

Patientdemographiccharacteristicsarepresented in Table 1. Observation statuswas assigned to 67 230 (33.3%) andinpatient status was assigned to 134476 (66.7%). Among the observation-status stays, the mean LOS was 1.1 60.3 days. The top 25 APR-DRGs (Supple-mental Table 3) represent 49 884(74.2%) of observation-status staysmeeting inclusion criteria. There were

83 565 inpatient-status stays forthese top 25 APR-DRGs, representing62.1% of inpatient-status stays meetinginclusion criteria. The 4 APR-DRGs cho-sen for detailed analysis representa total of 50 600 discharges (24.8% of allobservation-status stays, and 8.5% of allinpatient stays).

Costs Associated With AllObservation-Status Stays of £2Days

Aggregated costs for all observation-status stays of #2 days were $413.9million, with median costs includingroom of $2559 (interquartile range[IQR]: 1650–4043); costs excluding roomwere a median of $678 (IQR: 315–1286) (full range, 8–16 965). Within thetop 25 APR-DRGs in observation status,

TABLE 1 Patient Demographic Characteristics of All Patients Admitted From the EmergencyDepartment With LOS of #2 Days in Either Observation Status or Inpatient Status (NotOnly the Top 25 APR-DRGs)

Characteristic Observation Status Inpatient Status

Total 67 230 134 476Age, y,1 22 555 (33.55) 48 281 (35.9)1–5 17 161 (25.53) 29 855 (22.2)6–12 16 045 (23.87) 31 234 (23.23)13–18 10 591 (15.75) 22 725 (16.9).18 878 (1.31) 2381 (1.77)

GenderMale 37 709 (56.16) 74 429 (55.36)Female 29 431 (43.84) 60 021 (44.64)

RaceNon-Hispanic white 33 494 (52.88) 60 304 (49.08)Non-Hispanic black 18 900 (29.84) 32 304 (26.29)Hispanic 10 070 (15.9) 27 601 (22.46)Other 870 (1.37) 2660 (2.16)

Payer typeGovernment 32 352 (48.12) 64 548 (48)Private 22 938 (34.12) 46 602 (34.65)Other (includes self-pay, others) 11 940 (17.76) 23 326 (17.35)

% complex 11 067 (16.46) 30 890 (22.97)% surgical 6473 (9.63) 18 023 (13.4)Standardized cost median [IQR]Total (including room) 2559 [1650–4043] 3469 [2111–5003]Clinicala 141 [0–395] 175 [0–485]Pharmacy 72 [18–181] 153 [32–347]Laboratory 73 [0–211] 142 [0–336]Imaging 64 [0–160] 64 [0–157]Supply 25 [0–138] 25 [0–162]

Data are presented as n (%).a Clinical services refers to a long list of hospital services or activities not classified as imaging, laboratory, or pharmacyservices and also not professional services (although a professional service may be associated with the hospital billingactivity). These include electrocardiogram, EEG, pneumograms, chest physiotherapy, mechanical ventilation, oxygen therapy,dialysis, transfusions, and physical, occupational, and speech therapy.

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aggregate costs for observation-statusstays totaled more than $95 million.Within the top 25 APR-DRGs, mediancosts for observation-status stays in-cluding room costs were $2516 (IQR:1638–3922). When excluding roomcosts, the median costs were $651 (IQR:309–1236). Costs for these 25 APR-DRGsranged from $19 to $51 864 includingroom costs, and $4 to $12 842 excludingroom costs. For the selected 4 APR-DRGs,the range of reported costs was $19 to$6505 including room costs, and $5 to$2730 excluding room costs.

When evaluating all stays under ob-servation status, the largest cost con-tributor to the observation-status stayswas room, followed by clinical, labo-ratory, and pharmacy fees. There were31 observation-status patients (0.05%of observation status total) who gen-erated pharmacy costs more than$10 000, accounting for more than$508 577 in aggregate pharmacy costs.The most common diagnoses for theseoutliers included coagulation disorders

(eg, idiopathic thrombocytopenic pur-pura) (n = 11), toxic effect of venom (n =3), and inborn errors of metabolism(n = 9).

Costs for Observation-StatusVersus Inpatient-Status Stays ThatWere £2 Days

Within the top 25 ranking APR-DRGs,there was substantial overlap in costsfor observation-status and inpatient-status stays (Fig 1). For the selected 4APR-DRGs, there was again substantialoverlap in costs for observation statusand inpatient status (Fig 2 A–D).Observation-status patients had con-sistently lower nonroom costs com-pared with inpatient-status patients,but while the average severity-adjusted differences in costs betweenobservation-status and inpatient-status stays were statistically signifi-cant, the dollar amounts were small(Table 2). For example, the averageseverity-adjusted difference in mediancosts for laboratory tests for patients

with asthma was $23 lower for obser-vation status compared with inpatientstatus (P , .001).

Observation Status Use Betweenand Within Hospitals

Observation-status use for the top 25APR-DRGs was variable across hospi-tals; 9 of the 33 hospitals reportingobservation status to PHIS applied it to.30% of discharges for patients withLOS #2 days. Within the 25 APR-DRGs,the application of observation statusby the 33 hospitals ranged from 2% to45%. Observation status accountedfor 26% to 50% of total hospital costsassociated with #2-day stays in14 hospitals and .50% of costs in 8hospitals.

Inaddition tobetween-hospital variation,wealsonotedsubstantialwithin-hospitalvariation in the use of observationstatus compared with inpatient statusfor theselected4APR-DRGs.Within the 4APR-DRGs, there was less than a 25percentage point difference between

FIGURE 1Overlap of observation-status and inpatient-status stay costs for top 25 APR-DRGs, limited to LOS#2 days, no deaths, and no ICU stays. Comparing distributionof costs for observation-status versus inpatient-status stays, excluding room costs. Substantial distribution of costs overlapped; 25 to 75th percentile (%ile)for costs for observation-status costs extends from $1639 to $3922, whereas the 25 to 75th %ile for inpatient-status costs extends from $2009 to $4615. Max,maximum.

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the highest and lowest percentage ofobservation-status stays in 16 hospitals,a 25 to 50 percentage point differencein 15 hospitals, and .50 percentagepoint difference in 2 hospitals. Therewas also variability in the APR-DRGsthat represented the highest and

lowest percentage of observation-status stays within hospitals (Fig 3).

DISCUSSION

We demonstrated that observationstatus has variable use at the patientand hospital levels. Some hospitals

use observation status at a low rate,whereas others have more than one-third of stays #2 days in this status.Observation-status stays have sub-stantial overlap with inpatient stays interms of costs (Figs 1 and 2). When se-verity adjusted, these findings persisted

FIGURE 2Overlap of observation-status and inpatient-status stay costs for 4 select APR-DRGs, limited to LOS #2 days, no deaths, and no ICU stays. Comparingdistribution of costs for observation-status versus inpatient-status stays, excluding room costs. Substantial distribution of costs overlapped; dark graybars highlight the overlap at the 25th to 75th percentile (%ile) for each APR-DRG. Also shown are costs,75th %ile and.90th %ile with gray shading asin Figure 1. A, asthma; B, bronchiolitis and respiratory syncytial virus (RSV) pneumonia; C, nonbacterial gastroenteritis with nausea and vomiting; D,seizure.

TABLE 2 Severity-Adjusted Differences for 4 Selected APR-DRGs for Inpatient-Status Versus Observation-Status Stays#2 Days for Costs Excluding RoomCosts

APR-DRG Total IncludingRoom Costs

TotalExcludingRoom Costs

Clinical Costsa ImagingCosts

LaboratoryCosts

PharmacyCosts

SupplyCosts

Seizure 2451 (.629) 941 (.250) 756 (.355) 40 (,.001) 55 (,.001) 88 (.001) 2 (.798)Bronchiolitis 22270 (,.001) 350 (.061) 316 (.085) 24 (.031) 22 (,.001) 16 (.618) 0 (.940)Asthma 1366 (,.001) 1535 (,.001) 1442 (,.001) 21 (.595) 23 (,.001) 77 (.002) –6 (.001)Gastroenteritis 21329 (,.001) 2155 (.689) 2209 (.579) 22 (,.001) 44 (,.001) 0 (.992) –12 (.006)

Values equal inpatient-status costs minus observation-status costs. Values in parentheses are P values from testing if the difference is significantly different than zero. Positive values indicateinpatient-status. observation-status standardized cost, whereas negative values indicate observation-status. inpatient-status. Adjusted for age, APR-DRG severity of illness, and LOS, so thatvalue differentials do not correspond to absolute differences in Fig 1.a Clinical services refers to a long list of hospital services or activities not classified as imaging, laboratory, or pharmacy services and also not professional services (though a professionalservice may be associated with the hospital billing activity). These include electrocardiogram, EEG, pneumograms, chest physiotherapy, mechanical ventilation, oxygen therapy, dialysis,transfusions, and physical, occupational, and speech therapy.

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for most cost categories across theconditions (Table 2). This finding sug-gests that comparable clinical caremay be required by observation-statusand inpatient-status stays of similarshort duration. In aggregate, observation-status stays comprise a substantialamount of costs for pediatric hospital-based care. These findings are rele-vant not only for administrators andpolicy makers but for families andclinicians as well. It seems that hospi-tals and clinicians are providingequivalent care from a resource utili-zation perspective, but due to poorlydefined and inconsistently applied cri-teria for pediatric observation status,payment may be lower and patientsmay be at risk for higher out-of-pocketcosts.

The vastmajority of observation-statusstays (.99%) were lower-cost, shorterhospitalizations, and were dischargedwith diagnoses that match the con-ditions commonly treated within obser-vation units.7,18,19 However, designated

observation units for children are notcommon, even in children’s hospitals.6,20,21

Therefore, we suspect that most patientsin our analysis were cared for in a regu-lar inpatient unit. Hospitals with desig-nated observation units have identifiedbenefits in terms of reductions in LOSand associated costs. Such benefits maynot be realized without an organizationalframework and processes of care thatmatch resources to the needs of patientsstaying 1 to 2 days (who comprisea large proportion of pediatric hos-pitalizations).22–24

Our findings raise the concern that formany observation-status patients it isdifficult to determine ex post facto inadministrative data why some arein observation status and some in in-patient status, even within the samehospital. The large overlap in costs andvariability in use call into question theutility of segmentingpatients accordingto billing status. The findings in thecurrent study suggest there has beena shift away from the original intention

of the observation-status designation,which was established to pay forservices renderedwhile cliniciansweredetermining patient’s need for admis-sion to the hospital, expected to take,24 to 48 hours.25 High-intensitymedical services of brief duration,leading to quick clinical resolution,may receive lower reimbursementassociated with observation-statusdesignation and consequently haveimplications for hospital finance inchildren’s hospitals.

There are available standards (Inter-Qual, Milliman) for determining billingstatus, but the application of thesestandards varies within and acrosshospitals depending on individual con-tractswith payers.6 Furthermore, thesestandards were originally written foradults, and although there are nowsome pediatric-specific criteria pub-lished, many do not take into accountthe different disease courses based onages and developmental stages of pe-diatric patients. There is concern that

FIGURE 3Differences betweenminimum andmaximumpercentage of stays#2 days under observation status for the 4 select APR-DRGs. The solid black horizontal barsdemonstrate the difference between theminimum andmaximum percent of stays#2 days for the 4 APR-DRGs that were under observation statuswithin eachhospital. Lines are ordered from smallest difference (hospital 1) to greatest difference (hospital 33). The dashed gray lines indicate differences of 25percentage points and 50 percentage points.

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patients of the same level of complexityand LOSmay be inconsistently coded asobservation status in 1 hospital andinpatient status in another, or evenwithin the same hospital.28 Moreover,the lack of inclusion of observation-status patients in hospital utilizationstatistics is concerning, as the pop-ulation of observation-status patientsis growing and consuming resourcesyet is excluded from most resourceutilization analyses.29

Clinicians who spend time justifyinghospitalization status, conversing withpayers, and facing potential audits dueto incongruent coding of observationstatus versus inpatient status or forcoding too many of their patients asinpatient status (despite the patient’sclinical care being similar) should alsobe aware of these findings. The use ofbilling designations without clinicalrelevance also creates distractionsand interruptions to clinical work. Forphysicians who do their own codingand billing, these findings are directlyrelevant.

Payers often contract with hospi-tals for lower reimbursement forobservation-status stays.13,28 TheCurrent Procedural Terminology codesfor E/M are different for observation(“ambulatory”) E/M codes than for thecorresponding inpatient E/M codes.Given the risk of lower reimbursementfor observation status, these casesmay represent a financial burden onchildren’s hospitals and clinicians, whomay be doing the same work regard-less of classification of inpatient versusobservation status. An additional areaof concern is that costs of observationstays may be passed on to familiesbecause observation is defined bypayers as outpatient care with highercost-sharing than typical inpatientcoverage. Although not currently aconcern for most children, Medicarerecipients with observation-status stayshave different eligibility for skilled

nursing facilities; if private or publicinsurers for children take similar stan-ces, observation-status stays would bean even greater concern to the dispo-sition of patients.

Given the costs to hospitals and payersassociated with determining obser-vation status, and the potential fordifferentials in a family’s financial re-sponsibility,29 there is a need to furtherevaluate the use of observation statusfor pediatric patients. Simply extend-ing Medicare rules or arbitrarily des-ignating short stays as observationstatus opposes the uniqueness ofchildren and the often intense butbrief therapies they receive in hospi-tals. Given the recent announcement ofMedicaid audits,8 clearer definitionsfor pediatric observation status wouldbe valuable. Hospitals and payers maywish to collaborate to better under-stand the dynamics of pediatric carewith the goal of developing betterclinical criteria that will allow forgreater consistency in use of observa-tion status. Perhaps a new case-basedreimbursement model could be de-veloped for short-stay patients whowould not require any administra-tive or concurrent review to deter-mine status. This may require somecarve-outs, such as for high-cost drugs,or a complexity code for patients whostay a short period of time but havecomorbid conditions that require moreresources.

There are several limitations to thisanalysis. First, because only free-standing children’s hospitals were in-cluded, the findings may not begeneralizable to other populations.Nonetheless, these hospitals representthe majority of their type, and theirexperiences likely reflect what otherhospitals caring for children experi-ence. Second, database errors relatedto coding of diagnosis, admission type,costs, and dates would affect theresults. It is hard to estimate the di-

rection of bias, asmiscoding could leadto the appearance of higher or lowerLOS and/or costs, although there is noobvious reason why this would bemore likely in observation-status ver-sus inpatient-status stays. Similarly,extreme values in costs when the fullrange was provided (although not theIQR) raise questions about coding ofactivities and their associated costs.However, it is possible for patients togenerate few charges (and thus costs)while they occupy a bed for true ob-servation (often billed at an hourlyrate, generating smaller room chargesthan a per diem); conversely, expensiveservices or medications may be ad-ministered, raising costs for staysdeemed observation status by payers.Third, although we have limited in-formation about the use of codingpractices at each hospital and to theextent that hospitals do not have pay-ers that recognize observation status,admissions may not be categorizedthat way. For example, of 43 hospitals inPHIS, 10 did not have any patients inthis status, which may be because theydo not use observation status or be-cause they did not report its use. Inaddition, hospitals may be paid at anobservation rate for all or some daysof a hospitalization, even if the stayis coded as inpatient status in PHIS.Fourth, we do not know whetherobservation-status patients weretreated in observation units or in in-patient units. Finally, we used costs asa proxy for clinical needs of patients.Although imperfect, costs convey theacuity and complexity of patients be-cause it reflects the resources used totreat them.

CONCLUSIONS

There was significant variation in re-source utilization for patients hospi-talized under observation status andin the use of this status within andbetween hospitals. When compared

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with inpatient-status patients withsimilar diagnoses, patients coded asobservation status often had similarutilization, suggesting similar clinicalneeds. Further research is needed tobetter understand the characteristicsof pediatric patients discharged underobservation status. It is important todetermine the extent to which obser-

vation status reflects the duration ofhospital stay rather than low intensityof service. The more it resemblesthe latter, the more hospitals need tohave organizational frameworks andprocesses that match resources tothe lower-intensity but high-turnoverneeds of patients. For those withshort stays that require high-intensity

care, reimbursement should appro-priately match this level of care, andthe status should not be coded asobservation.

ACKNOWLEDGMENTSWe acknowledge Adam Stoller, MPH, forhis assistance in reviewing and prepar-ing the manuscript for submission.

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www.pediatrics.org/cgi/doi/10.1542/peds.2012-2494

doi:10.1542/peds.2012-2494

Accepted for publication Feb 7, 2013

Address correspondence to Evan S. Fieldston, MD, MBA, MSHP, The Children’s Hospital of Philadelphia, 34th and Civic Center Blvd, CHOP North, Room 1516,Philadelphia, PA 19104. E-mail: fieldston@email.chop.edu

PEDIATRICS (ISSN Numbers: Print, 0031-4005; Online, 1098-4275).

Copyright © 2013 by the American Academy of Pediatrics

FINANCIAL DISCLOSURE: The authors have indicated they have no financial relationships relevant to this article to disclose.

FUNDING: Internal funds from the Children’s Hospital Association and The Children’s Hospital of Philadelphia supported the conduct of this work.

COMPANION PAPER: A companion to this article can be found on page 1180, and online at www.pediatrics.org/cgi/doi/10.1542/peds.2013-0898.

1058 FIELDSTON et al

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DOI: 10.1542/peds.2012-2494 originally published online May 13, 2013; 2013;131;1050Pediatrics 

Mark A. Del Beccaro, John Harding and Michelle L. MacyEvan S. Fieldston, Samir S. Shah, Matthew Hall, Paul D. Hain, Elizabeth R. Alpern,

Resource Utilization for Observation-Status Stays at Children's Hospitals

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DOI: 10.1542/peds.2012-2494 originally published online May 13, 2013; 2013;131;1050Pediatrics 

Mark A. Del Beccaro, John Harding and Michelle L. MacyEvan S. Fieldston, Samir S. Shah, Matthew Hall, Paul D. Hain, Elizabeth R. Alpern,

Resource Utilization for Observation-Status Stays at Children's Hospitals

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