The observable patient in the DRG era.

We examined financial differences of observing patients in the acute care hospital versus an emergency department observation unit. We identified 193 patients who could have been treated in either the acute care hospital or observation unit. Under a cost reimbursement system, the charge per patient was +197 greater, the reimbursement per patient was +254 greater, and the profit per patient was +140 greater for observing patients in the hospital rather than in the observation unit (p less than 0.001). Under a prospective payment system, the charge per patient was +1187 greater, the reimbursement per patient was +1137 greater, and the profit per patient was +1063 greater for observing patients in the hospital rather than in the observation unit (p less than 0.001). This difference in reimbursement can be a great financial incentive for hospitals to admit patients rather than to observe them in the emergency department. Significant savings might be realized for the health care payer by optimal use of observation units under a prospective payment or cost reimbursement system.