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ACPA Blog - Steven J Meyerson, MD, CHCQM-PHYADV

Admission from observation: Where criteria blur
By Steven J Meyerson
Posted on 9/21/2018 10:46 AM

 As readers of this blog may be aware, I have written from time to time on the proper use and the abuse of InterQual (IQ) and MCG admission criteria, which assist in determining when a hospitalized patient should be placed in an outpatient observation bed or when the patient should be admitted as an inpatient. This is an important issue for several reasons: Since nearly every U.S. hospital utilizes one of these two proprietary products, it’s important that they use their tools correctly. Confusion about status can result in improper billing, which can in turn lead to denials, recoupments of previous payments, and the additional cost of rebilling. In some cases, denials come after the window for rebilling has expired and the hospital gets paid little to nothing for the services it provided.

In Medicare’s 2-midnight world, admission criteria are less important because Medicare has established a “bright line” for hospitals: admission is based on the physician’s expectation or the patient’s actual need for 2 successive midnights of hospital care. But when it comes to managed care plans that claim to use IQ or MSG criteria, they all too often abuse the process by refusing to allow physician judgment to override published criteria. This can occur at admission, as discussed in my earlier posts, but it is also a problem when determining whether a patient should be admitted from an observation bed, with managed care plans sometimes insisting on observation stays that may last several days.

Admission from observation

IQ and MCG criteria may be applied (and can be misapplied) when a decision needs to be made whether to admit a patient who has had one midnight or more in observation. In order to get the perspective of IQ and MCG on this question, I queried Dr. Steven Silverstein, Vice President, Chief Clinical Architect, Decision Support at Change Healthcare (the publisher of InterQual Clinical Criteria) and Dr. William Rifkin, Managing Editor and Physician Relations Specialist at MCG.


InterQual criteria define observation level of care for “hemodynamically stable patients who require 6-24 hours of treatment or assessment pending a decision regarding the need for additional care”.

Here is Dr. Silverstein’s response to my question, “Can you explain how InterQual criteria should be applied to determine if a patient who has had one midnight in observation should be admitted?  Or is this a circumstance that is determined by physician judgment?”

Most IQ subsets that include the Observation Level of Care allow 1-2 episode days at that level of care…

As you know, IQ uses the concepts of episode days and responder criteria. Episode day (ED) 1 is the initial day that a patient is in a hospital bed. Responder (R), partial responder (PR), and nonresponder (NR) criteria indicate whether or not the patient is appropriate for discharge or potentially requires a continued stay. Responders are ready for discharge, partial responders require a continued stay, and nonresponders require additional review (which I will discuss) or secondary review.

Observation patients who meet responder criteria on ED2 are ready for discharge (or whatever we call being released from being an outpatient receiving observation services).

But what about patients who haven’t recovered sufficiently to be released after “1-2 episode days”?

For those patients who do not meet responder criteria, the reviewer should apply either partial responder criteria in observation (if it is present in criteria for ED2 for the condition being reviewed) or apply criteria at any available level of care (Acute, Intermediate, or Critical) within that subset on Episode Day 2.

Meeting criteria at any available level of care establishes the need for continued stay in a hospital bed.

OK, so the criteria may indicate continued stay after 1-2 days in observation, and we know that a traditional Medicare patient requiring continued hospital care after 1 midnight should be admitted. Dr. Silverstein continued:

Under the 2MN rule, meeting medical necessity criteria on ED2 means that the patient will receive 2MN of medically necessary care, meet the 2MN presumption, and therefore inpatient status is appropriate. This is true regardless of the level of care met.

But what about other payers, the commercial and Medicare Advantage plans?

Payment status, on the other hand, is largely (often exclusively) a function of payer rules.

Keep in mind, however, the 6-24 hour time frame that is defined in the InterQual observation criteria. This may come in handy for appeals.

What about MCG?

Dr. Rifkin offered MCG’s response to the same question I posed to Dr. Silverstein, with this explanation for Medicare patients:

…[W]orking within a 2-midnight frame of reference, after one midnight (e.g., patient came in to ED on Monday, now it is Tuesday) the question before the clinician is “Do I think the patient will achieve the Observation Care Discharge Criteria before Tuesday’s midnight into Wednesday?

Within content and in the Introduction to Observation Care, MCG explains:

Inpatient admission or transition to inpatient admission from observation care is generally indicated when a condition (e.g., acute MI) is diagnosed requiring a longer-term stay or when longer-term treatment or monitoring is needed for a condition (e.g., persistent severe asthma).

The design of the Observation Care Guidelines is such that failure to achieve the Observation Care Discharge Criteria within the observation care period (e.g., 24 hours, 2 midnights) constitutes satisfaction of one or more of the Clinical Indications for Admission in the companion inpatient guideline. In this way, patients should either meet Observation Care Discharge Criteria (e.g., have follow-up care as an outpatient) or inpatient admission criteria (and be admitted as an inpatient) within the customary observation care period (e.g., 24 hours, 2 midnights).

The Observation Care Admission Criteria section lists specific criteria that identify the subset of patients for whom observation care may be appropriate (i.e., as opposed to Emergency Department "treat and release").

Finally, clinical review of the patient's individual features (e.g., severity of illness) may determine, from the onset, that care is best provided by inpatient admission (e.g., it is judged that the patient will require hospital level care that crosses at least 2 midnights). In this way, the Admission Criteria in the Inpatient Guideline are generally of two types. The first describe a severity of illness or condition that warrants inpatient care (e.g., at presentation or shortly thereafter), and the second describe a less severe illness or condition that has not sufficiently improved after observation care (e.g., persistent signs or symptoms).

As to whether MCG makes a recommendation on the maximum length of “the observation period” before admitting to inpatient, Dr. Rifkin added:

We don’t prescribe a length of time. We believe and state within content that observation care is time limited. What this time limit may be (e.g., 24 hours, 2 midnights) depends on the payer and contractual agreements between payer and provider.

The payers have the gold, and they make the rules.

So is a hospital stuck with “payer rules” that always seem to favor the payer? Can a payer that claims to use InterQual criteria arbitrarily demand that a hospital bill for 3, 4, or even 5 days of observation? Can it refuse to allow admission even though an observation patient has failed to meet observation discharge criteria? Unfortunately, it can if the hospital has agreed by contract to abide by the payer’s utilization plan and admission rules without stipulating that those rules include secondary review and an appropriate time frame for admission from observation.

The next time the hospital sits down with the plan to renegotiate its contract, the physician advisor or case management director should be at the table (or at least behind the curtains) helping the hospital’s negotiator understand the importance of admission rules.

Observation is defined in the Medicare Benefit Policy Manual 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 patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital.”

Unless a managed care organization publishes its own definition (which it is free to do) I propose that its use of the term “observation” implies acceptance of this definition. So the issue in question here is: how long is “short-term”?

Failing to define the duration of observation – when a patient has “failed observation” – is at the heart of this problem. It’s up to the hospital to get clarity in the contract or face payer-imposed extended observation stays, interminable appeals and loss of revenue.

Note: Drs. Rifkin and Silverstein reviewed and edited their quoted comments.

See also:

“Use and Abuse of Screening Criteria”; ACPA Blog, 8/30/2016;

"Lifting the Hood on Observation to Inpatient Conversions”; ACPA Blog, 11/1/16;


“Physician Advisor: Critical Player in Payer Contracting”; ACPA News/Articles, 9/27/2017;

 “Push Back Against Abuse of Admission Criteria”; ACPA Blog, 4/24/18;

“Don't Accept Denial Without Secondary Review”; ACPA Blog, 7/26/18;

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