Most ADHF patients are treated in the inpatient environment. The emergency department (ED) is the point of entry for three out of every four ADHF patients, and 75–90 % of HF patients presenting to the ED are ultimately admitted to the hospital [16]. Since most HF patients are of Medicare age, facilities are reimbursed on a fixed inpatient payment under the current MS-DRG system effective since October 2008 and, therefore, must provide extremely efficient care in order to maintain financial viability. Today the average MS-DRG (291, 292, and 293) reimbursement $6,842 for the acute care facility, which often does not receive sufficient reimbursement to cover the costs of care for the ADHF patient. Under the former DRG payment system for a typical hospital, the financial breakeven point was roughly 5 days, but the average ADHF patient has a length of stay greater than 5 days, resulting in a fiscal loss for the hospital. A review of cost data in 2001 demonstrated an average loss of $2,104 per ADHF (any new data?) patient [17]. The new MS-DRG system was designed to more appropriately align financial compensation to severity and should offset some but not all of these losses.

In addition to the challenges of providing optimal efficiency in caring for the ADHF patient to avoid financial losses, CMS has placed further burdens on facilities by targeting inappropriate 1-day length of stay admissions and readmissions within 30 days. Review of such admissions could result in the hospital potentially losing reimbursement for such admissions and thus further compounding an already fiscally austere situation. In light of the high readmission rates noted earlier, the hospital is vulnerable to even further losses as they could become fully financially responsible for the care of such patients. Facing such fiscal pressures in an already challenging overall economic environment, hospitals have been forced to reevaluate current practices and redesign care models for the ADHF patient.

Over the last 10 years, emergency departments (ED) saw patient volume increasing substantially. In 2007, there were 117 million visits to the ED in the United States [18]. As the volume of ED visits continued to increase, admissions to acute care facilities increased, thus decreasing the access to inpatient beds. In an effort to improve access and reduce costs, hospitals have focused on efforts to further reduce length of stays and shift care from the inpatient to the outpatient arena.

In the 1990s, certain patients were often held in the ED for observation in an attempt to make a more clinically educated decision about the need for admission versus the safety of discharge after appropriate intensified treatment [19]. More formal chest pain centers (CPC) emerged and marked the initial attempts to evaluate low-risk chest pain patients for myocardial infarction in a short stay unit, often within the emergency department. This approach represented an operational mechanism to improve quality of care, enhance clinical outcomes, and reduce overall costs. The success of the CPC showed that quality of care was not compromised in this fiscally sound model. The CPC led the way for the development of a more formalized observation unit (OU) that could be expanded to treatment of other medical conditions, providing the same level of care in the outpatient setting as in the acute care setting.

As the OU evolved, the Centers for Medicare and Medicaid Services (CMS) initially targeted asthma, chest pain, and ADHF for efforts to reduce morbidity and mortality through the use of efficient evaluation and intense treatment in non-acute care settings. CMS defines observation care as a “well defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment before a decision can be made regarding whether a patient will require further treatment as hospital inpatients or if they are able to be discharged from the hospital” [20]. OU services are less than 48 h and often less than 24 h. Under unusual circumstances, it may exceed 48 h.

In the typical ED evaluation of the ADHF patients, over 75 % of patients ended up being admitted to the acute hospital setting [21]. With intense and focused treatment, the OU affords the opportunity to reduce inpatient admissions. In a study of a hospitalist-run short stay unit, a heart failure diagnosis predicted stays longer than 72 h [22]. In this study, need for consultations and the lack of accessibility to diagnostic tests resulted in longer stays. OUs can accelerate accessibility to these services. Studies show that institution of evidence-based aggressive treatments in the OU, 75 % of HF patients can be discharged home from the OU. Benefit also exists for those who require inpatient admission after OU treatment, as their overall hospital length of stay is shorter than for those admitted directly to the inpatient setting [23] (Fig. 2.3).

Use of OU days has increased substantially over the decade. Between 2003 and 2007, there was a 403 % increase in OU separately payable observation days. The number of OU days increased from 65,000 in 2003 to over 262,000 in 2007 [24]. In 2013, 18.6 % of 133 million ED visits were admitted to the OU [25]. Use of the OU is likely to continue to increase in the current healthcare environment (Fig. 2.4).

The high cost for patients with heart failure is attributed to high rates of hospital admissions and long lengths of stay for acute decompensation of this condition. The OU emerged as a viable strategy for putting into play efficient and aggressive diagnostic and therapeutic urgent services in an intensely monitored situation [26]. Addition of case management, disease management, and discharge planning activities has been shown to avoid subsequent hospitalizations.

Disease management (DM) programs have targeted heart failure from their inception. Early DM programs focused on high-risk patients, predominantly those recently discharged from the hospital following decompensation in CHF. Programs subsequently expanded to those HF patients who were at high risk but who had not yet been hospitalized. The processes and interventions were similar for both target groups.

Patients in the acute care facility, whether as inpatients or in the OU, attentive and thorough discharge planning is a critical piece of the successful DM program [27].

From the societal point of view, DM programs in heart failure benefit the patient with respect to clinical outcomes and quality of life and perhaps in individual costs of care. Early studies on HF DM programs showed mixed clinical outcome results. Some DM programs have shown reductions in hospitalization and mortality in short-term efforts in high-risk patients [28, 29]. Most recent studies have suggested cost-effectiveness may be demonstrated over the long term and in a broader-risk patient [30, 31]. A recent cost estimation model of an integrated care approach utilizing telemedicine monitoring showed a potential for 8 % total healthcare cost savings over a 3-year period [32]. Overall program costs are often higher in the DM group but the QALY (quality-adjusted life year) gained is beneficial. The cost savings in reduced hospitalizations are often offset or exceeded by the costs of the intervention [33]. Insurers benefit from lowered costs of readmission. Hospitals experience less revenue from readmissions, but they benefit on national quality measures by showing reduced readmissions. Those stakeholders responsible for the payment of the costs of the programs may or may not financially benefit; only if they too are financially responsible for future hospitalizations are they likely to benefit.

DM provides focused and evidence-based treatment approaches to patients with HF. Medically, it is the most appropriate comprehensive management approach for this group and it shows improved outcomes. The healthcare system will have to evolve in its methods for paying for such program to put the burden for intervention costs on the stakeholders most likely to benefit from the outcomes.

The importance of the OU to the healthcare system is in the benefit on clinical and financial outcomes. The use of nationally recognized clinical guidelines and pathways for the treatment of ADHF is the first step toward optimizing HF care. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) has created a set of quality performance indicators for HF. These Advanced Certification in Heart Failure (ACHF) inpatient indicators for 2016 include beta blocker therapy at discharge, post-discharge evaluation and follow-up appointment, transmission of transition report, and discussion and execution of advance directive. There are seven optional outpatient performance measures: beta blocker therapy, ACEI or ARB therapy for LV systolic dysfunction, aldosterone antagonist for LV dysfunction, NYHA classification, outpatient activity recommendations, and discussion/execution of advance directives [34].

Despite treatment advances in HF that include medications and device-based therapies, many HF patients do not receive treatment according to these guidelines [35]. The lack of adherence to guidelines may be related in part to a lack of knowledge, but more likely is the result of operational inefficiencies. Intense DM efforts to incorporate evidence-based treatments that focus on the accepted quality indicators can impact the ADHF patient. A study from the Veterans Affairs San Diego Healthcare System demonstrated significant improvement in nationally established performance measures for HF using a multidisciplinary, computerized care pathway [36]. The well-designed OU can provide the operational efficiencies necessary to put treatment guidelines into effect and thereby achieve optimal clinical outcomes.

Although OU management has been demonstrated to reduce morbidity and a trend toward reduced mortality, further studies are needed to assess the full impact of focused OU care – diagnosis, treatment, intensity of service, and staffing—on quality measures.

The OU provides a location for the provision of intense medical therapy and services under close observation and frequent monitoring of response to such treatment. In the ADHERE data registry (a multicenter, observational database of patients discharged from the hospital with a DRG diagnosis for HF), the time to initiation of administration of certain intravenous medicines specifically directed at acute HF was 1.1 h if the patient’s treatment was initiated in the ED compared with 22 h if therapy was begun in an inpatient unit [37]. The OU protocols for both treatment and timely adjustments in treatment plans lead to more intense and timely initiation of therapy, which can have remarkable differences in clinical outcomes, as well as a dramatic impact on financial implications.

Treatment of ADHF in an OU has resulted in reduced 30-day readmissions and hospitalizations and decreased LOS if a subsequent hospitalization is required [38]. The Cleveland Clinic experience with OU as a venue for treatment of the ADHF patient also reported positive 90-day outcomes [39].

In another study, Peacock showed that institution of OU for HF showed a 56 % decrease in ED revisits, 64 % reduction in re-hospitalizations, and a slight trend in decreased mortality [40]. Limited studies on the direct cost-effectiveness of OU in ADHF treatment exist. In a study of cost-effectiveness of OU admission, a subset of low-risk ADHF patients admitted to OU demonstrated an acceptable societal marginal ratio when compared to discharge from the ED [41]. This benefit was related to the somewhat higher risk of readmission and early-after-discharge rate of death associated with ED discharge. Future cost-effectiveness studies are required to further delineate how cost-effective the OU is for ADHF.

In 2002, CMS developed a new coding and reimbursement rate specifically to cover OU services for chest pain, asthma, and heart failure. Ambulatory Patient Classification Code (APC) 0339 was designed to compensate for treating patients with these subsets of conditions aggressively on the front end versus admitting them to the acute care setting. In addition to the APC, hospitals could also bill for most diagnostic tests that were performed during the OU stay, if medically necessary. This marked a new direction in reimbursement.

Since the initiation of the OU status as venue for care, several iterations of coding and reimbursement rules have emerged and evolved. At the same time, concerns arose for use of observation status for inappropriate conditions, lengthy outpatient stays, potential inadequate care with early discharge of inpatients, unintended higher co-payments for patients, issues with the two-midnight rule, the impact on a patient’s candidacy for subsequent SNF coverage, and possible improper payment for services leading to gaming the system.

In 2013, the Office of Inspector General (OIG) undertook an overall evaluation of the use and impact of the OU on Medicare patients to assess these concerns [42]. The OIG found that total hospital services for Medicare patients included 1.5 million OU stays, 1.4 long outpatient stays, and 1.1 million short inpatient stays. Most OU stays averaged one night. The use of these services was not consistent over all hospitals; so it appeared that at least some facilities could have been promoting more favorable financial reimbursements regarding OU versus inpatient level of care. From a Medicare perspective, usually a short inpatient stay is more costly than a short OU stay. The other important finding was that a significant portion of hospital stays did not qualify Medicare patients for subsequent SNF services, while in other circumstances, Medicare inappropriately paid $255 million for SNF services patients received but for which they did not qualify. This study emphasized the need for policy changes that were fair to Medicare patients, reduced inconsistencies across the country in how OU services were used, and equitable reimbursement reforms.

For 2016, the CMS OPPS Final Rule, CMS-1633-FC; CMS-1607-F2, added ten new APC s. A new code for comprehensive observation services (C-APC) was created. C-APC 8011 replaced APC 8009 with a national payment rate of $2,174.14, substantially higher than the prior extended assessment and management payments for OU care. However, a new status indicator, J2, was also created and the old J1 was deleted. This change effectively combines payments for what are considered “adjunctive” services into a single prospective payment for the total comprehensive service into C-APC 8011. This change introduces the concept of bundled payments for observation care. These new rules also capped the patient’s out of pockets for observation status which was a point of contention in the prior coding scenarios. This shift to a bundled payment program is meant to promote more efficient and evidence-based protocol use in the OU.

OU services are reimbursed separately for facilities and for physician services. HCPCS observation codes (G0378, G0379, G0384, or G0463) are submitted on a UB-04 claim form by facilities. Professional observation evaluation and management services are billed as CPT codes. The requirements for coverage of OU services under C-APC 8011 are summarized in Table 2.1 [43].

For professional services the following rules apply. The physician supervising OU care can submit CPT 99218–99220 (depending on intensity of E&M service) for initial OU care. The physician must record that the member is to be in observation status, document the medical necessity for such, document the care plan, and perform regular assessment and initiate treatment. If the patient is designated to OU status and discharged from such on the same date, CPT 99234–99236 is used instead. If a patient remains in OU stays for more than two calendar days, then CPT 99224–99226 for subsequent observation care is used. OU discharge services require a minimum of 8-h stay but less than 24 h and code if 99217 is appropriate. If the patient is in a global surgical period, OU services cannot be billed.

From a Medicare perspective, OU stays are less costly than inpatient stays. Short inpatient stays result in a total cost to CMS of $5.9 billion versus $2.6 billion for observation stays. On a per-case basis, the savings are even more pronounced: $5,142 per short inpatient stay case versus $1,741 per observation case. From the patient perspective, co-payments for observation services are generally lower as well. The observation co-pay is less than inpatient 94 % of the time [44]. The 20 % OU copayment is usually $452 and the 2015 Inpatient co-pay was $1,260. In a 2014 analysis, 51 % of patients had to cover self-administered drug costs for an average of $528. Even considering some of the additional costs to patients, the overall financial burden is less in observation.

In order to be more transparent about the implications on an OU stay on a Medicare patient’s financial responsibilities, the NOTICE act was created [45]. Effective August 6, 2016, if it is determined that a patient will be in observation for more than 24 h, the hospital must notify the patient orally and in writing of the potential consequences within 36 h. They must be informed that they are an outpatient stay and not an inpatient admission and the reasons for such. The patient must also be informed of any potential consequences of an observation stay, such as financial responsibilities (copayments, coinsurance, deductibles, etc.), services in the stay that are not covered by Medicare, and impact on possible future SMF admissions.

The data to date suggest that using the OU as a venue of care for selected patients can improve hospital efficiency, reduce inappropriate short inpatient admissions, and reduce overall costs to the system. Historically, implementation of OU has been increasing, and the model appears embedded in the evolving healthcare system. However, future changes are likely to come. While many hospitals provide observation “services” without a specific OU, it is estimated that only one-third of hospital facilities are currently using a defined OU [46]. An analysis by Baugh et al. in 2012, estimated that on a national level, cost savings from utilizing OU services would approach $3.1 billion annually [47]. Average savings per patient were estimated at $1,572. Annual savings for a hospital could range up to $4.6 million. The OU represents a viable alternative venue for appropriately selected patients and one that has a financially favorable impact on the healthcare system.