# Observation Stays and Readmissions for Older Adults: Implications for Medicare Policies

> **NIH NIH R01** · UNIVERSITY OF WASHINGTON · 2020 · $196,536

## Abstract

SUMMARY
Each year, more than 3.4 million Medicare beneficiaries are hospitalized as outpatients under observation.
These observation stays have comprised a rapidly increasing proportion of unscheduled hospitalizations
among older adults in the US. Controversial Medicare policies, including the Recovery Audit Contractor (RAC)
Program and the 2-Midnight Rule, have greatly incentivized hospitals to care for patients via observation
instead of an inpatient admission. Additionally, the Hospital Readmissions Reduction Program (HRRP), which
penalizes hospitals with higher-than-expected rates of readmissions for certain conditions, may have also had
the untoward consequence of incentivizing hospitals to use observation to avoid readmission penalties.
Yet, despite their growing importance in hospital care and the complex policy environment driving their use,
few studies have examined how observation stays impact patient’s quality of care and outcomes. Recent
evidence shows that 30-day readmissions are increasing among patients with observation stays, despite
concomitant declines among inpatients. These disparate trends are significant given that federal quality
programs, such as the HRRP, have thus far entirely ignored observation stays in hospital-based care delivery.
Similarly, hospitals are not held accountable for other outcomes for patients hospitalized under observation,
such as mortality. As a result, there has been little incentive for hospitals to ensure high-quality and effective
care for patients with observation stays relative to inpatients. In this context, this study aims to fill critical gaps
in our understanding of the consequences the growth of observation stays on patient outcomes. Using
longitudinal Medicare claims and quasi-experimental methods, we will specifically answer the following
questions: 1) What is the contemporary national landscape of readmissions, post-discharge ED use, mortality,
and acute care costs for patients with observation stays, and how does this compare to inpatients across
hospitals?; 2) How have current Medicare payment reforms, including the Recover Audit Contractor (RAC)
program, 2-Midnight Rule and HRRP, impacted the use of observation stays, and more importantly, have they
had unintended consequences on patient outcomes?; 3) Finally, how should observation stays be accounted
for in national quality programs to fully reflect the care needs of older adults requiring hospital care? This study
will be the most comprehensive examination to date of outcomes for Medicare beneficiaries with observation
stays, and is specifically designed to inform clinical and policy decision-making around observation care for
older adults.

## Key facts

- **NIH application ID:** 9967871
- **Project number:** 1R01AG063759-01A1
- **Recipient organization:** UNIVERSITY OF WASHINGTON
- **Principal Investigator:** Amber Kathleen Sabbatini
- **Activity code:** R01 (R01, R21, SBIR, etc.)
- **Funding institute:** NIH
- **Fiscal year:** 2020
- **Award amount:** $196,536
- **Award type:** 1
- **Project period:** 2020-05-15 → 2024-02-29

## Primary source

NIH RePORTER: https://reporter.nih.gov/project-details/9967871

## Citation

> US National Institutes of Health, RePORTER application 9967871, Observation Stays and Readmissions for Older Adults: Implications for Medicare Policies (1R01AG063759-01A1). Retrieved via AI Analytics 2026-05-24 from https://api.ai-analytics.org/grant/nih/9967871. Licensed CC0.

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