By Tiffany Ferguson, LMSW, CMAC, ACM, FCM, ACPA-C
Hospitals closely monitor observation utilization, observation length of stay, avoidable days, and discharge delays. What is less visible is the uncompensated care delivered to patients who do not need (or no longer need) outpatient hospital-level treatment, but cannot leave because of social or custodial barriers.
This care is often absorbed into observation metrics, rather than recognized for what it is: a potential form of charity care.
“Charity care” generally refers to free or discounted hospital services for patients who cannot afford to pay. A KFF analysis found wide variation in reported charity care among hospitals.
In 2020, charity care accounted for 1.4 percent or less of operating expenses at half of all hospitals. KFF noted that this variation likely reflects differences in hospital missions and business practices, patient needs, and federal, state, and local policies.
In my travels, I question whether hospitals are attributing all the services they pay for or write off as charity care. I also believe that hospitals are underreporting charity care delivered to patients classified as outpatients receiving observation services.
Observation services are intended to be short-term services used to determine whether a patient requires inpatient admission or can be safely discharged. Hospitals, however, often care for patients whose clinical treatment is complete, but face significant barriers to discharge.
The patient may be awaiting long-term placement or have no discharge destination. A caregiver may be unavailable, guardianship may be unresolved, or housing instability and other social factors may keep the patient from leaving. Regardless of the cause, the patient continues to occupy a hospital bed.
The challenge emerges when the patient’s status designation does not keep pace with their circumstances. A patient who began the stay in observation may remain on observation reports long after the clinical reason for observation has been resolved.
These patients end up hidden in “long observation stays,” leaving CFOs asking why they are not converting to inpatient. More importantly, once the extended stay exceeds any reimbursement structure, the cost is often adjusted off on the claim, rather than captured as potential charity care through administrative days.
To report charity care, hospitals must have a mechanism for assessing patient financial need. This process is already in place for uninsured and self-pay patients who require hospitalization.
But how does a prolonged observation stay get assessed when the patient no longer meets coverage for continued services and has no safe housing option for discharge? Does the financial assistance policy account for medications the hospital funds for patients without coverage, or for the single-case agreements hospitals negotiate to move patients into custodial settings?
What about patients who remain in a hospital bed for months or even years, because no other option exists, while the hospital receives no reimbursement until a discharge plan is secured?
My recommendation is to call it what it is. When a bedded outpatient does not require or no longer requires observation services, that patient should have a separate designation. My preference is “outpatient in a bed,” but “social admission” or “custodial stay” would also work.
A distinct designation would clearly show how many days the hospital housed social and custodial patients, remove confusion from observation metrics, and most importantly, create a pathway for patient financial assistance – and for the billing office to appropriately account for these days as charity care.
The same principle applies to the discharge-related services that case management typically authorizes, such as medications, transportation, and single-case agreements. I recommend tracking this spending in a dedicated cost center or under a specific general ledger (GL) code so it can be captured accurately in hospital cost reporting.
Hospitals are already providing this care; I think they are simply not getting enough credit for it. When social and custodial stays remain buried in observation data, hospitals misread their throughput performance and understate the community benefit they provide.
By giving these patients a distinct designation, aligning financial assistance policies with the realities of extended non-acute stays, and tracking case management discharge spending separately, hospitals can turn hidden write-offs into accurately reported charity care.
Clear data tells the true story of what hospitals contribute to their communities and strengthens the case for providing the post-acute and community resources these patients need.