Increasing Trends in the Use of Hospital Observation Services for Older Medicare Advantage and Privately Insured Patients

Policy and financial pressures have driven up use of observation stays for patients in traditional Medicare and the Veterans’ Affairs Healthcare System. Using claims data (2004-2014) from OptumLabs™ Data Warehouse, we examined whether people in private Medicare Advantage (MA) and commercial plans experienced similar changes. We found that use of observation increased rapidly for patients in MA plans—even though MA plans were not subject to the same pressures as government-run programs. In contrast, use of observation remained constant for people in commercial plans—except for enrollees 65 and older, for whom it increased somewhat. Privately insured patients returning to the hospital after an inpatient stay were increasingly likely to be placed under observation. Our results suggest that observation is rapidly replacing inpatient admissions and readmissions for many older patients in MA and commercial plans, while younger patients continue to be admitted as inpatients at relatively constant rates.