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Major strides in reducing hospital readmissions, an often-cited indicator of quality in both acute and post-acute settings, were actually overstated when taking into account the rising use of observation stays, a recent study has found.

Both hospitals and skilled nursing facilities can be fined for above-average readmission rates, and both sectors have made concerted efforts to lower their numbers over the last decade. 

But researchers from the University of Washington and Washington University in St. Louis found that improvements were inflated because hospital readmission measures don’t include stays where patients are held for observation and not technically admitted. 

“Our results suggest that an increasingly larger share of hospital care will be invisible to quality metrics if shifts in observation stay practices are not accounted for in readmissions algorithms,” the team reported in JAMA Network Open on Nov. 17. “The resulting risks of incorrect assumptions and program ineffectiveness extend beyond the [Medicare Hospital Readmissions Reduction Program] to other quality programs, particularly given broader trends to both measure readmissions under value-based payment models and shift more conditions and procedures to outpatient management.”

Such observation stays are also controversial because they often prevent many patients from qualifying for a three-day stay that would trigger Medicare-covered skilled nursing care.

It was the Affordable Care Act that first led to fines for hospitals with higher-than-expected readmissions rates. Starting in 2018, nursing homes also became subject to readmissions metrics as part of value-based purchasing efforts. The worst nursing homes were subject to a 2% penalty, while the best were supposed to garner incentive payments. But those VBP pay rewards have been on hold for two years.

While the study did not look at how observation stays were affecting metrics for readmitted skilled nursing patients, it raised more questions about the overall practice of holding Medicare beneficiaries rather than admitting them.

About 18% of Medicare patients now complete their hospital treatment in observation, the team wrote, and observation stays are often “clinically indistinguishable from short inpatient admissions with patients hospitalized for observation sharing the same clinical wards and teams as inpatients.”

But this study of about 9 million hospitalizations among fee-for-service beneficiaries found that more than half of the decreases in readmission rates for targeted conditions were attributable to observation stays.

Jose Figueroa, MD, of the Harvard T.H. Chan School of Public Health, and Rishi Wadhera, MD, of Beth Israel Deaconess Medical Center, writing in related commentary, said it was time to retire the “ineffective policy.”

“These findings may not be surprising to many front-line clinicians, who have experienced the unintended effects of the HRRP for over a decade, including increased pressure from administrators to not readmit patients from the ED and nudges to increase use of observation status,” they wrote.

“If policy makers are serious about enhancing patient care, they have a responsibility to iteratively improve, refine, or eliminate policies based on emerging evidence and take concerns raised by front-line clinicians seriously,”  Figueroa and Wadhera added. “After a decade of evidence that has overwhelmingly shown that the HRRP has been largely ineffective, it is time for federal policy makers to retire the program.”