Observation medicine has made considerable progress since the 2015 implementation of Medicare’s Two-Midnight Rule, a reimbursement policy under which hospital stays spanning less than two midnights are generally categorized as outpatient observation rather than inpatient admissions. What was once viewed primarily as a billing designation has become an increasingly important clinical and operational strategy for managing emergency department crowding, preserving inpatient capacity, and determining which patients can safely return home without requiring a full hospital admission.

As hospitals operate near capacity, observation care maintains patient flow. A scoping review of 461 published studies in the August 9, 2024, issue of the Journal of the American College of Emergency Physicians Open found that observation literature has largely focused on cardiac conditions, length of stay, and conversion rates, while little research examines staffing models or operational structure.

Meanwhile, a systematic review in the February 20, 2025 issue of BMC Emergency Medicine found that physician-led triage interventions and fast-track strategies significantly reduced emergency department length of stay, underscoring the importance of early clinical decision-making.

“Observation shouldn’t be viewed as a pause in care,” said David Feldman, MD, hospitalist and chief medical officer at Dimer Health in Florham Park, New Jersey, which provides support to patients and caregivers during recovery from a hospital stay. “It’s an active phase of care with a defined clinical question that should move the patient toward either safe discharge or inpatient admission.”

Gail Clifford, MD, internal medicine hospitalist and medical consultant at Paramount Wellness Retreat in Haddam, Connecticut, said observation care should never become a holding pattern.

“Observation care operates best when all parties involved clearly understand the expectations for the immediate future,” she said. “It cannot be a ‘waiting room’ to develop a plan.”

When a patient is admitted under observation status, the hospitalist should be able to define the primary clinical questions, determine what additional testing or evaluation will be required, identify conditions where discharge would be considered safe, and provide the criteria for when a full inpatient admission would be necessary, she said. 

Selecting the Right Patients

Observation care begins with a clearly defined clinical question and an expectation that it can be answered within 24-48 hours.

“Observation status works best when the patient’s diagnosis is reasonably clear, the expected clinical course is short, and there is a defined decision point within 24-48 hours,” Feldman said. “Patients with high-risk physiology or anticipated need for prolonged treatment warrant inpatient admission instead.”

Clifford added that clinically unstable patients are not appropriate candidates.

Alexander Joshue Acosta Peñafiel, MD, emergency medicine specialist and medical consultant for home-health equipment provider SonderCare in London, Ontario, Canada, said patient selection depends on how a condition evolves.

“The Two-Midnight rule is a reimbursement rule and, for the most part, doesn’t necessarily reflect the severity of a patient’s illness,” he said. “I consider trajectory, whether or not symptoms will improve within 24 hours, or if the patient needs a full evaluation in the inpatient setting.”

Acosta Peñafiel focuses on patterns rather than individual data points.

“I’m more interested in the trends in vital signs and how they’re responding to treatment than any one lab value,” he said. “Most errors in triage are made in that first hour, and teams get caught up in the chief complaint rather than the process of what happens to the patient.”

Standardized Pathways Require Standardized Workflows 

“The pathways and protocols themselves are only half the equation,” Feldman said. “Chest pain and TIA [transient ischemic attack] pathways are good examples of conditions with well-defined diagnostic algorithms and discharge criteria, but they only succeed when the rest of the hospital treats observation patients with the same sense of urgency as those in the emergency department.”

Delays in imaging, testing, or specialty consults prolong stays. Feldman said that these delays create bottlenecks.

“Observation patients require expedited operational workflows, not just standardized clinical protocols,” he said.

Clifford noted that pathways alone are insufficient. She said that there are effective pathways for common problems such as chest pain, syncope, and possible transient ischemic attack, but that the effectiveness of these tactics relies on prompt evaluation.

“If each test and consultation is ordered individually over several hours, the benefits of these standardized pathways are largely lost. Without a predetermined endpoint to guide decision-making, observation status can inadvertently delay appropriate care,” Clifford said.

Clarity is another component of effective pathways, according to Jamie Chang, MD, board-certified emergency medicine physician and chief medical officer at healthcare technology firm WellSky in Overland Park, Kansas.

“Proven workflows and standardized care pathways that best prevent prolonged hospital stays require clarity around what clinical outcomes need to be achieved prior to discharge from the hospital and what care can be safely delivered after discharge via post-acute care,” he said. “Early coordination of home health or skilled nursing prevents delays.”

Preventing Observation Patients From Getting Stuck in Limbo

“Success starts with shared expectations before the patient ever leaves the emergency department,” Feldman said.

“A concise handoff that includes the working diagnosis, outstanding questions, and specific milestones for discharge helps everyone work toward the same endpoint rather than simply transferring responsibility for it.”

Without clear structure, observation patients become boarders. 

“The handoff decides the outcome of the observation before entry into the room by the hospitalist,” said Acosta Peñafiel, recounting a delay caused by an uncommunicated swallow study. “When a care delivery team has a common discharge target from admission, the speed of care delivery improves without any member of the team feeling rushed,” he said.

Chang added that emergency physicians and hospitalists should reach consensus before talking to families.

“Hospitalists dislike when the emergency department has already informed the patient that they are being admitted to the hospital and sent the patient’s family home.”

“The biggest bottleneck is a failure to recognize that discharge planning should begin the moment a patient enters observation, not when they’re ready to leave,” Feldman said.

Clifford said that early multidisciplinary discussions regarding barriers such as transportation and medication access are critical in this process, while nurses work more effectively when they understand the hospitalist’s overall goals, according to Chang.

Measuring Success Beyond Length of Stay 

Ultimately, observation medicine requires a coordinated model where multidisciplinary teams work from a shared plan, beginning the moment observation care starts.

“The objective is not to accelerate discharge at the expense of quality, but to eliminate unnecessary delays so clinicians can make informed decisions as efficiently as possible,” Clifford said.

The experts cited in this article reported having no disclosures.