Observation Hospitalists: Focus on Coding, Billing, and Documentation

This growing specialty must know the rules for accurate reimbursement.

By Penny Osmon, BA, CPC, CPC-I, PCS, CHC

A hospitalist is a physician whose primary focus is the general medical care of hospitalized patients. There are multiple employment models for hospitalists, including direct employment by a facility, independent contractor, or participation in a medical group practice that contracts with various facilities. Understanding the employment relationship is critical to appropriate billing and coding for hospitalist services. We’ll focus on the independent group practice model.

Evaluation and Management – CEMC

A hospitalist cannot credential with Medicare or most commercial payers as a “hospitalist” because it is not a recognized specialty. Hospitalists become credentialed under the specialty of which they train. This is important when coding and billing for their services. As stated in Medicare Claims Processing Manual 100-04, chapter 12, section 30.6.5:

Physicians in the same group practice who are in the same specialty must bill and be paid as though they were a single physician. If more than one evaluation and management (face-to-face) service is provided on the same day to the same patient by the same physician or more than one physician in the same specialty in the same group, only one evaluation and management service may be reported unless the evaluation and management services are for unrelated problems. Instead of billing separately, the physicians should select a level of service representative of the combined visits and submit the appropriate code for that level.

This is a common scenario faced by independent hospitalist groups because they share hospital patients’ care with their colleagues.

It is critical that the admitting physician record a documented order for inpatient status.

Most Common Services Billed

Because hospitalists spend all of their time in the hospital, the majority of services they perform and bill are for evaluation and management (E/M) services. The most common services billed are:

  • Initial Hospital Care (99221-99223)
  • Subsequent Hospital Care (99231-99233)
  • Observation or Inpatient Care Services (99234-99236)
  • Initial and Observation Care (99217, 99218-99220, 99224-99226,)
  • Hospital Discharge Services (99238, 99239)
  • Critical Care Services (99291-99292)

When Does the Encounter Begin?

It is critical that the admitting physician record a documented order for inpatient status, thus beginning the hospital encounter. Principles of CPT® Coding tells us the initial hospital care codes (99221-99223) should be billed on the day of the actual face-to-face visit. CPT® instructs that if a patient is admitted from a different site of service on the same calendar day (e.g., the emergency department (ED) or observation status), all services are considered part of the admission. That leads to the question: Is an initial hospital care code the same as an admission?

Hospital Conditions of Participation (CoP) require a history and physical (H&P) to be completed no more than 30 days before, or 24 hours after, hospital admission. The initial hospital care codes take us one step further because three of the components (history, physical exam, and medical decision making (MDM)) are required. A simple H&P without documenting the MDM will not substantiate the initial hospital care code. Ultimately, the H&P will support the 99221-99223, but MDM also must be documented for accurate and correct coding.

Quick Chart for Coding Initial Hospital Care E/M Services:

99221 99222 99223
History DetailedHPI 4+ROS 2-9PFSH(2 of 3) ComprehensiveHPI 4+ROS 10-14PFSH(3 of 3) ComprehensiveHPI 4+ROS 10-14PFSH(3 of 3)
Exam Detailed Comprehensive Comprehensive
MDM Straightforward/Low Moderate High
Time Typically30 min Typically50 min Typically70 min

Typically, one initial hospital care code is allowed per patient, per episode of care. In 2010, however, Medicare eliminated consultation codes for payment recognition, and inpatient consultations are now billed using initial hospital care codes. The admitting physician must append informational modifier AI Principal physician of record when billing the initial hospital care code to denote that he or she is the admitting physician of record.

Split/Shared Care in the Hospital

If a hospitalist group employs mid-level providers, such as a physician assistant (PA) or nurse practitioner (NP), the documentation requirements for accurate coding and billing. In the hospital (ED, outpatient, or inpatient), Medicare allows E/M services to be split or shared between a physician and a non-physician practitioner (NPP). Either the physician or the NPP may bill for the service under his or her own National Provider Identifier (NPI). Both the physician and the NPP must personally have a face-to-face visit with the patient and document one of the three required elements for initial hospital care, or two required elements for subsequent hospital care.

Because Medicare reimbursement for an NPP is 85 percent of the Medicare allowed fee schedule amount, there is a financial advantage to billing under the NPI of the physician. The documentation must clearly indicate the personal provision of services by each provider. One Medicare contractor, Wisconsin Physicians Service ( WPS), has the following non-qualifying documentation examples posted on its website to assist in guiding supporting documentation:

  • “I have personally seen and examined the patient independently, reviewed the PA’s history, exam and MDM and agree with the assessment and plan as written,” signed by the physician
  • “Patient seen,” signed by the physician
  • “Seen and examined,” signed by the physician.
  • “Seen and examined and agree with above (or agree with plan),” signed by the physician
  • “As above,” signed by the physician
  • Documentation by the NPP stating “The patient was seen and examined by myself and Dr. X, who agrees with the plan,” with a co-sign of the note by Dr. X
  • No comment at all by the physician, or only a physician signature at the end of the note

Source: www.wpsmedicare.com/part_b/departments/medical_review/2009_1116_em.shtml

One example of qualifying documentation consists of capturing the physician’s face-to-face presence with the patient. This can be as simple as, “Mr. Jones’ lungs sound better today and he reports less shortness of breath at night. Reviewed and agree with NP’s plan.”

Time-based Coding in the Hospital

Time-based coding is under used in the hospital, but it may be appropriate because hospitalists provide varying levels of counseling and coordination of care to patients. By capturing the nature of these discussions, and documenting that greater than 50 percent of the total time was dedicated to these activities, time-based coding becomes a viable option. An example that supports this approach is, “Total floor/unit time was 45 min., and greater than 50 percent of that time was spent at the bedside discussing DNR orders with patient and family members.” CPT® defines total floor/unit time to include:

  • Provider is present in the hospital unit and/or at the bedside of the patient
  • Reviewing the patient’s chart
  • Examining the patient
  • Writing notes/orders
  • Communicating with other professionals and the patient’s family on the floor

The Centers for Medicare & Medicaid Services (CMS) instructs in the Medicare Claims Processing Manual 100-04, chapter 12, section (H) “The time approximation must meet or exceed the specific CPT code billed (determined by the typical/average time associated with the evaluation and management code) and should not be ‘rounded’ to the next higher level.” It further states, “In those evaluation and management services in which the code level is selected based on time, prolonged services may only be reported with the highest code level in that family of codes as the companion code.”

If a hospitalist performs and documents a subsequent hospital visit based on time and spends greater than 50 percent of the time in counseling or coordination of care, time-based coding is a mechanism to both capture the service and preserve revenue integrity.

Observation Opportunities

An observation encounter begins with a physician’s dated and timed order clearly identifying the reason the patient has been given this status. Observation is an outpatient status (POS 22), not a place. The two key identifiers when billing observation services to Medicare are:

1. The length of stay

2. The number of calendar days

According to Medicare rules, if an observation stay is less than eight hours on the same calendar day, you must bill for the initial observation care only using Initial Observation Care codes 99218-99220, as appropriate. In this scenario, a discharge is not billed. When an observation stay is greater than eight hours and the patient is admitted and discharged on the same calendar day, Observation Same Day Admit/Discharge codes 99234-99236 are assigned based on supporting documentation. Observation stays that span beyond one calendar day are coded using the Initial Observation Care codes on day one and Observation Discharge code 99217 on day two. When an observation stay is greater than 48 hours, Subsequent Observation Care codes 99224-99226 are used for the interim days. Medicare has instructed that these codes be reported by only the admitting physician, although CPT® guides us to use these for all physicians caring for the patient during subsequent observation days. Check with third-party payers for guidance.

Use this quick chart to distinguish observation stay coding.

Same Calendar Day Two Calendar Days
< 8 hours99218–99220∅ Discharge code > 8 hours99234–99236 Provider must see twice Day 1: 99218–99220Day 2: 99217, orDay 2: Subsequent
Observation: 99224–99226


Remember that all related outpatient E/M services on a given calendar day are included in the observation service. CPT® instructs, “When observation status is initiated in the course of an encounter in another site of service (e.g., hospital ED, physician’s office, nursing facility) all evaluations and management services provided by the supervising physician in conjunction with initiating observation status are considered part of the initial observation care when performed on the same day.”

Documentation to secure correct hospitalist observation billing includes a dated and timed order, the reason for observation, and notations that support personal provision of services by the physician. Document the total time spent to adhere to the Medicare eight-hour rule.

CMS Releases Guidance on Admission Decisions

CMS recently released MLN Matters® Number: SE1037, “Guidance on Hospital Inpatient Admission Decisions,” to address how screening criteria (such as Interqual, Milliman, etc.) are being used to make medical necessity determinations on inpatient hospital claims. CMS clarifies that although contractors are required to use a screening tool as part of the medical review process for inpatient claims, a specific tool is not required and CMS contractors are not required to pay a claim based solely on the screening criteria to indicate that admission is appropriate.

Discharge Do’s and Don’ts

As the hospital episode comes to an end, a hospitalist—as the attending physician—often is responsible for delivering final discharge instructions to the patient. Hospital Discharge Day Management codes 99238 (less than 30 minutes) and 99239 (greater than 30 minutes) describe face-to-face E/M services between the attending physician and the patient. Discharge day management visits are reported on the date of the actual face-to-face visit by the hospitalist, even if the patient is discharged from the facility on a different calendar date. This also holds true when pronouncing death. Medicare Claims Processing Manual, 100-04, chapter 12, section 30.6.9 (E) states, “Only the physician who personally performs the pronouncement of death shall bill for the face-to-face Hospital Discharge Day Management Service. … The date of the pronouncement shall reflect the calendar date of service on the day it was performed even if the paperwork is delayed to a subsequent date.” The key to capturing work and revenue when reporting hospital discharge is documenting the total time spent conducting discharge activities.

Critical Care Cautions and Caveats

CPT® defines critical care services necessary when, “a critical illness or injury acutely impairs one or more vital organ system such that there is a high probability of imminent or life threatening deterioration in the patient’s condition; and the physician must devote his/her full attention to the patient and, therefore, cannot provide services to any other patient during the same time period.”

When providing critical care services, a hospitalist must devote his or her full attention only to the patient requiring the critical care services. Critical care cannot be provided as a split/shared service. Only one physician may bill for any one minute of critical care. Critical care does not have to be continuous, but documentation must capture the total time spent performing critical care, the interventions taken, and the high-complexity decision-making involved. You also must document the services performed that are not part of critical care, and the time spent performing them. For example, “Please note critical care time 45 minutes beyond all billable procedures spent entirely focused on this patient’s care.”

Critical care often is provided in a coronary care unit, intensive care unit (ICU), respiratory care unit, or ED. Payment may be made for critical care services provided in any location as long as the care provided meets the definition of critical care and is supported by the documentation. Critical care is payable on the same calendar day as another E/M service as long as the E/M service precedes any critical care services on the same day. ED services are never payable on the same day as critical care.

Hospitalists continue to be a growing specialty of medicine. Until “hospitalist” is a recognized specialty for billing purposes, however, you will need to navigate through the aforementioned coding, billing, and documentation rules for accurate reimbursement.


It is critical that the admitting physician record a documented order for inpatient status.


Penny Osmon, BA, CPC, CPC-I, PCS, CHC, is the director of educational strategies for the Wisconsin Medical Society. She has over 15 years of health care experience in Medicare compliance, coding, and practice management. She presents educational programs on revenue cycle, risk management, and health information management for physician practices throughout Wisconsin and the Midwest region with an emphasis on reducing waste, mitigating risk, and improving quality. She serves on the Wisconsin Medical Group Management Association Third Party Payer and Medicare and Medicaid Workgroups.


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