Charging observation hours

I have recently learned that a large healthcare system is charging a flat hourly rate for observation. Currently we charge different rates based on acuity levels of service. We would like to explore the opportunity to go with a flat rate because we feel like we are losing revenue in the ED since we charge a lower rate. Any thoughts/Recommendations?


  • These days charges rarely correlate with revenue. For example, Medicare pays Observation stays (with a few cavetas) as a comprehensive APC- one fixed payment so the charge does not matter. If you have commercial plans that pay Obs as a line item based on charges, then it seems you should charge more per hour for an ICU Observation patient than for a routine med/surg patient. 
    Also of course your charges do go into cost reporting that is used by CMS to set rates, so that might be another reason to differentiate ICU obs from telemetry obs charges since your costs are higher. 
    Hope others contribute their answers.
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