Public Policy

The Observation Deck

Observation care provides a mechanism to evaluate and treat patients without the resource utilization and financial responsibility associated with an inpatient admission. Hospitalists may not understand the billing compliance risk and corresponding revenue implications when observation services (OBS) are not captured correctly.

Are OBS best reported with observation care codes (99218-99220, 99234-99236), office visit codes (99201-99215), or initial hospital care codes (99221-99223)? Code selection depends upon the patient’s registered status, the nature of the provided service, and the length of stay. Review the following information before reporting OBS to ensure an accurate claim submission.

Code This Case

The hospitalist orders an inpatient admission. Somewhere along the stay, the status was changed to OBS. Does the hospitalist report observation care codes or inpatient service codes?

In cases where a hospital utilization review committee determines an inpatient admission does not meet the hospital’s inpatient criteria, the hospital may change the patient status from inpatient to outpatient. They then submit an outpatient claim for medically necessary services that were furnished, as long as the following Medicare requirements are met:

  • The patient status change is made prior to patient discharge;
  • The hospital has not submitted a claim to Medicare for the inpatient admission;
  • A physician concurs with the utilization review committee’s decision; and
  • The physician’s concurrence with the utilization review committee’s decision is documented in the patient’s medical record.6

The entire stay is treated as observation, and physicians report the observation care codes—as appropriate non-Medicare insurer guidelines may vary but often follow Medicare guidelines. It is best to query non-Medicare payers for their specific change-of-status policies.

Attending Physician Responsibilities

The physician-documented reason for observation substantiates the medical necessity for the OBS admission. Contractors often evaluate medical records to determine the consistency between the physician order (physician intent), the services actually provided (inpatient or outpatient), and the medical necessity of those services, including the medical appropriateness of the inpatient or observation stay.

Certain diagnoses and procedures generally do not support an inpatient admission and fall within the definitions of outpatient observation. Uncomplicated presentations of chest pain (rule out MI), mild asthma/COPD, mild CHF, syncope and decreased responsiveness, atrial arrhythmias, and renal colic all frequently are associated with the expectation of a brief (less than 24-hour) stay unless serious pathology is uncovered.2 Situations that do not meet the criteria for observation care are considered “not medically necessary” and separate payment is not permitted. Examples of circumstances that lack medical necessity include:

  • Outpatient blood administration;
  • Lack of/delay in patient transportation;
  • Provision of a medical exam for patients who do not require skilled support;
  • Routine preparation prior to and recovery after diagnostic testing;
  • Routine recovery and post-operative care after ambulatory surgery;
  • When used for the convenience of the physician, patient or patient’s family;
  • While awaiting transfer to another facility;
  • Duration of care exceeding 48 hours;
  • When an overnight stay is planned prior to diagnostic testing;
  • Standing orders following outpatient surgery;
  • Services that would normally require inpatient stay;
  • No physicians order to admit to observation;
  • Observation following an uncomplicated treatment or procedure;
  • Services that are not reasonable and necessary for care of the patient;
  • Services provided concurrently with chemotherapy; and
  • Inpatients discharged to outpatient observation status.3

The attending physician of record assumes responsibility for the patient’s admission to observation and is permitted to report observation care codes. In addition to the reason for admission, a medical record involving the observation stay must include dated and timed physician admitting orders outlining the care plan, physician progress notes, and discharge orders. This documentation must be added to any other record prepared as a result of an emergency department or outpatient clinic encounter. If physicians other than the admitting physician/group (i.e., physicians in different specialties) provide services to the patient during observation, they must use the appropriate outpatient visit (e.g., 99214) or consultation code (e.g., 99244).

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