Protocol-driven emergency department observation units offer savings, shorter stays, and reduced admissions.

Many patients who seek emergency department (ED) treatment are not well enough for immediate discharge but are not clearly sick enough to warrant full inpatient admission. These patients are increasingly treated as outpatients using observation services. Hospitals employ four basic approaches to observation services, which can be categorized by the presence or absence of a dedicated observation unit and of defined protocols. To understand which approach might have the greatest impact, we compared 2010 data from three sources: a case study of observation units in Atlanta, Georgia; statewide discharge data for Georgia; and national survey and discharge data. Compared to patients receiving observation services elsewhere in the hospital, patients cared for in "type 1" observation units-dedicated units with defined protocols-have a 23-38 percent shorter length-of-stay, a 17-44 percent lower probability of subsequent inpatient admission, and $950 million in potential national cost savings each year. Furthermore, we estimate that 11.7 percent of short-stay inpatients nationwide could be treated in a type 1 unit, with possible savings of $5.5-$8.5 billion annually. Policy makers should have hospitals report the setting in which observation services are provided and consider payment incentives for care in a type 1 unit.