Category: Original Article

Measures of efficiency in the emergency department observation units

Claudia Cicchini MD, PhD1, Antonio Simone MD2, Valentina Valeriano MD1, Donatella Livoli MD1, Francesco Rocco Pugliese MD3.
1Emergency Physician,
2Chair of the Emergency Department Observation Unit,
3Medical Director of the Department of Emergency Medicine
Department of Emergency Medicine, Sandro Pertini Hospital, Rome, Italy 


There are nearly 120 million visits to emergency department each year; as the population increases and ages, the growth rate for emergency department visits and the admissions created a surge in demand for inpatient beds.
Current health care reforms moved against deficiencies in access, cost and quality of care. The drastic reduction of hospital beds number and the need for more inpatient capacity brings attention to short-stay admissions and to the alternatives for such many patients at lower cost without adverse effects on care and quality.
The observation medicine literature was reviewed using PubMed. This article is a synthesis in support of observation units with their measures of efficiency.
Observation units increase patient safety and satisfaction while decreasing unnecessary inpatient admissions and providing fiscal performance. Pushing more patient volume through the emergency department observation units diverts patients away from inpatient services and mitigates both emergency department and inpatient crowding. Furthermore maximizing the number of patients seen in the emergency department observation unit enables the emergency department to capture many additional observation payments. Of course patient care comes first and an optimal observation unit is designed to prioritize serving patients and not management or finance concerns.
Creating an observation unit is a dominant strategy for institutions with the volume to justify the fixed costs of operating one.

Key words: observation unit, emergency department, emergency medicine, efficiency

There are enormous pressures to acute care hospital to increase patient access, safety, quality of care and satisfaction without increasing costs. Many institutions are now managing part of the emergency department (ED) patients as outpatients in short-stay observation units (OU), operated by the ED (1-10). Such patients require either further treatment or diagnostics before being safely discharged and usually stay less than 24 hours.
The use of the OU for those hospitals with the volume of ED visits to justify one, is a win-win initiative with the potential to lower costs and improving patients safety and satisfaction without impacting the quality of care.
A dominant strategy is one that does at least as well as every other strategy in all situations but does strictly better than every other strategy in at least one situation: the OU is a dominant strategy, because every aspect of care in this setting is at least equivalent, if not better, to the alternative of inpatient care.
Understanding the financing of an OU is critical to justify its creation.
The aim of the article is to clarify the rationale for and operating characteristics of these units and to provide support for their clinical and amministrative benefits.

Financial aspects of the EDOU USE

The creation or expansion of observation units is usually compared with alternative competing capital projects, i.e. expanding acute care ED beds or inpatients beds, but the ability for EDOUs to deliver care and provide additional risk stratification through efficient resource use and shorter hospital stay centers on a business model that has proven profitable. EDOUs use algorithm-driven care, allowing for standardized rapid treatment and evaluation within the 24-hour window required for observation stays. (11-13) Thus the first goal of the EDOU is to augment the clinical capacity of the ED and to maximize ED efficiency and profitability (14-15). 
For those who are discharged home from the ED the Lazio Region treats their ED stay as a type of outpatient visit: there is a fixed repayment based on the triage color code, regardless of the diagnosis and the type and amount of the used resources (table 1) (16). Placing a patient in the EDOU generates a new single code combining the ED visit and ED observation: it’s a single rate of 275 euro per patient, calculated as the average value of 0-1 day hospitalization minus 15% (17). If we properly select the patients for EDOU on the basis of either the diagnosis and the triage code, we can generate the advantage of a higher-paying code.
Another financial benefit results from patients discharged home from the EDOU: EDOU avoided an inpatient admission that would have potentially resulted in a loss for the hospital. The Lazio Region payments for several common diagnoses (i.e. congestive heart failure) do not fully cover average inpatient hospital costs. By managing patients who would have created a loss for the hospital as an inpatient, EDOUs create value, and an inpatient bed could be filled by a patient with a more profitable diagnosis related groups (DRG) payment. However hospitals must be careful about shifting too much acute care into EDOU, because any EDOU stay that results in inpatient admission (about 20% of EDOU patients) are only paid by a single DRG that includes ED, EDOU and inpatient care.
The potential costs associated with an EDOU include fixed, variable and opportunity costs.
Fixed costs include the new construction or conversion from existing spaces and the maintenance costs, and above all the staffing. Physician and nurse staff tends to be minimal because patients in observation have been selected because they represent a low acuity population amenable to simple care algorithms with a high likelihood of being discharged home.
Variable costs include the direct resources required to care for each patient, i.e. the costs of charting, housekeeping, linens for bed turnaround.
Opportunity costs are the opportunities for profit lost because of resources diverted to the EDOU. For hospital at full capacity, filling an inpatient bed with a patient who could have been observed creates an opportunity cost because profitable patients (i.e. transfers, elective surgery patients) may be deferred as a result.
Table 1 Regional refund by the Lazio Region to the hospital based on triage color code (16).
Triage color code
Rate per patient (euro)
Dead on arrival

Measures of observation care

An essential component of a profitable EDOU is operational efficiency. Maximum efficiency in the EDOU and subsequently profitability require optimizing three main operational variables: the occupancy rate, the duration of observation, the discharge to home rate.       
            Occupancy rate
Because it is impossible to exactly match patient arrivals to departures (i.e. time needed for bed turnover), the maximum occupancy rate will always be less than 100%. However an optimal occupancy rate approaching 100% is obviously beneficial for a dedicated EDOU with fixed resources (number of beds, nursing staff).
The Pertini Hospital has a 10-bed EDOU with an average length stay of 12 hours. Let’s assume a bed turnover time of 30 minutes. The theoretical maximum daily patient bed time is 240 hours (24 hours x 10 beds). Nor accounting for bed turnover or variability in arrivals, the theoretical occupancy rate is 100% (20 patients per day at 12 hours per patient, occupied 240 hours or 100%). Accounting for bed turnover time, but assuming perfect arrival times, a more accurate maximum occupancy rate can be calculated: 12,5 hours per patient (12-hour stay and 30-minutes bed turn around) allows for 19.2 patients per day (24 hours / 12.5 hours per patient x 10 beds), or 1.92 patients per bed per day (19.2 patients per day / 10 beds). Thus 19.2 patients x 12 hours per patient = 230.4 hours of patient bed time, or a 96% occupancy rate (230.5/240)
Thus even if a new patient was always ready to take the spot of a patient leaving the EDOU, the maximum occupancy rate would be 96%. Actually the variability of arrivals to the EDOU will push this maximum even lower.
            Duration of observation
The maximum length of stay should be less than 24 hours because stays longer than 1 day are inefficient use of the EDOU. No additional payment is generated for keeping patients longer. The payment for observation is replaced by a single diagnosis related groups (DRG) payment for when patients are admitted to the inpatient service. Thus to maximize EDOU volume, the maximum number of patients can be cared for in the EDOU if every patient stayed more than 6 hours, but never less, and no more than 24 hours.
            Discharge to home rate
Assuming a maximum occupancy rate near to 90% and an optimal length of stay between 6 and 24 hours for all EDOU patients, the discharge to home rate remains the elusive variable to optimize. Obviously the ideal rate would approach 100%, but attention should be payed to avoid the increasing short-stay inpatient admission as it represents inefficient use of resources. However even in the ideal clinical trial settings around 20% of patients evaluated in the EDOU require admission.
The discharge home rate could be used to determine the industry-wide benchmark, but these data should be taken with caution because they may not reflect the various social, psychiatric and geriatric independency issue that often complicate disposition management in EDOU patients. No organizations published benchmark rates to date, even if in 1995 Brillman et al. have already suggested that units with a discharge to home rate less than 70% should question their guidelines for observation (18).


If sufficient patient volume exists in an institution to justify the expense of an EDOU, opening or enlarging one to maximize both clinical utility and profitability should be strongly considered. A 5% to 10% of ED volume can be expected to be managed in an observation unit. Assuming the average length of stay and the bed turnover calculations previously discussed and given a ratio of 5 patients per nurse, the minimum efficient size of a dedicated EDOU should be 5 beds, which translate into a minimum ED volume of 30,000 to 50,000 annual visits. Administrators of hospitals with ED volumes greater than 30,000 annual visits, but without an observation unit, should assess with the ED clinical staff if this additional resource could add clinical and financial sense for that institution. Of course the expected return on investment must be calculated over several years and compared with competing alternatives such as expanding acute care ED space or inpatient capacity.
The EDOU operational metrics of occupancy rate, length of stay and discharge to home rate are intertwined: changing one of them affects the two others. These variables can be optimized by proper patient selection: well-constructed inclusion and exclusion criteria must be utilized in addition to well-established diagnostic and treatment algorithms.
There are two compelling arguments for observation: improved clinical decision making and increased profitability. Moving patients to an EDOU frees up overcrowded ED resources such as acute care treatment rooms, and provides patients appropriate evaluation, treatment and risk stratification. At the same time EDOU can improve the profitability of a hospital admission on the basis of the payment of the Lazio Region for color code in the ED admission and in the EDOU.
Although efficiency maximization is an important consideration of EDOU management, payment parameters mustn’t dictate clinical management. Focus must always be on providing the right care to the right patient in the right place at the right time.
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