The binary decision, admit or discharge, was the only option allowed by the traditional approach to the evaluation and management of patients over 3-4 hours in the emergency department. This traditional approach was a failure for many reasons including a high rate of missed diagnoses, increased malpractice liability, and a long and more costly inpatient length of stay. The addition of a third option, observation, selected patients with a low probability of serious, dangerous disease who could receive an additional 8–24 hours of evaluation and/or treatment. The result was best practices with fewer missed diagnoses, better patient care/outcomes at a lower cost with financial viability. The evolution of observation medicine with leadership and the support of ACEP and SAEM responding to Centers for Medicare and Medicaid issues including reimbursement and the two-midnight rule is discussed.