Clinical observation units help manage costs and care

Clinical observation units were created to avoid questionable admissions and short inpatient stays that were likely to result in Medicare payment denials. With the rise of managed care, these units also can contribute to ensuring optimal reimbursement by helping manage patient flow. Hermann Hospital, a facility affiliated with the University of Texas, Houston, initially opened an improved observation unit in 1992, but recorded a 13 percent Medicare payment denial rate and operating losses of as much as $20,000 per month during the first five months of the unit's operation. A multidisciplinary team was formed to address the observation unit's low utilization and payment denial problems. The problems identified included missed opportunities for admissions, inappropriate admissions, and extended stays. The facility took corrective measures based on the quality team's assessment and corrective measures developed by the utilization management committee and quality teams. The clinical observation unit now sustains a zero denial rate and steady revenue increases resulting from improved utilization of the unit.