Observation Coding

Navigate the fine lines between ED, outpatient, inpatient

By Sarah Todt, RN, CPC, CPC-EDS

Observation services, as reported with evaluation and management codes, allow physicians an additional opportunity to provide quality patient care at facilities beyond the typical admit or discharge scenario. With a close watch, the coder can capture the value of these services for their physicians.

Evaluation and Management – CEMC

Observation Care

Sometimes the patient is not sick enough to warrant admission to the hospital, but is not clearly safe for discharge. Physicians then have additional options for service codes outside of the typical E/M series 99281-99285 (ED) or 99221-99223 (initial hospital care).When additional diagnostics or treatments are required to determine whether a patient should be admitted or discharged, physicians may choose to place the patient in “observation status.” Observation services do not indicate a specific hospital location, but represent a status. Frequently, the emergency department will have a separate location for observation services; however, a distinct area is not required. Become familiar with your hospital’s name for the observation area. Names such as “clinical decision unit” (CDU) or “observation treatment area” may be used.

Patients will be placed into this status while the physician completes diagnostic tests or treatments to establish whether the patient requires admission or may be discharged. CMS has directed that observation status should not be used if an admission is clearly intended. Therefore, the first thing required to code observation services is a prospective timed “admit to observation” order. This does not represent a formal admission to the hospital, but shows that the physician has opted to perform additional testing or clinical interventions and, depending on the outcome, will decide on admission or discharge of the patient.

Observation care is often employed when there is diagnostic uncertainty. Chest pain, respiratory distress and abdominal pain represent some situations that may warrant admission to observation status in order to complete the diagnostic workup. Laboratory and/or radiological tests may be performed with reassessments. A physician may admit a patient to observation when that patient receives medical treatment requiring evaluation of the response. The hope is that with some additional intensive treatment, the patient will improve and will not require admission to the hospital. A patient with an asthma exacerbation or an allergic reaction may be admitted to observation and receive multiple medications. A dehydrated or intoxicated patient may be placed in observation to provide hydration services and evaluate for neurological or metabolic disorders.

Timing Determines Selection of Codes

The CPT® codebook includes two sets of observation service codes. The first set is for admission to observation with discharge on a subsequent date. The second set is used when a patient is admitted and discharged on the same date of service. After appropriate selection of the observation code set is made, the coder will then review documentation of the history and physical exam, along with medical decision-making, to assign the appropriate code. According to CPT® guidelines, observation care does not require a certain number of hours in order to code for the service. Coders should review the policies of specific payers for any such requirements. When coding these services for Medicare patients, CMS requires a minimum stay of eight hours to bill for same day admission and discharge observation services.

Documentation Requirements for Observation Services

Observation services require certain documentation elements to be contained within the record. First, there must be clear documentation that the patient is under the care of a physician.

Additional required documentation includes:

  • An order of admission to observation status.
  • Discharge order with summary.
  • Progress notes.
  • All of these notes must include a date and time.

Procedures performed while the patient is in observation should be appropriately documented. As long as the procedures represent a separately identifiable service, modifier 25 should be employed and is appended to the appropriate observation code, as follows:

Observation Codes

Admission and discharge to observation on different days of service

CPT® Code Description — Initial Observation Care

99218 Requires a detailed or comprehensive history and examination with straight forward or low complexity medical decision-making

99219 Requires a comprehensive history and examination with moderate complexity medical decision-making

99220 Requires a comprehensive history and examination with high complexity medical decision-making

Discharge Services

99217 Observation care discharge day management

Admission and discharge to observation on same days of service

CPT® Code Description

99234 Requires a detailed or comprehensive history and examination with straight forward or low complexity medical decision-making

99235 Requires a comprehensive history and examination with moderate complexity medical decision-making

99236 Requires a comprehensive history and examination with high complexity medical decision-making

Refer to the current year CPT® codebook, Medicare documentation guidelines and payer policies for correct assignment of these codes.

Be aware: Although many E/M services require only two out of three past, family, social history (PFSH) elements to meet the requirements for a comprehensive history, observation services typically require all three elements to be reviewed.

CMS documentation guidelines state that for observation evaluation and management services, “at least one specific item from each of the three history areas must be documented for a complete PFSH.” The coder will need to be aware that unless all three past medical, family and social history elements are documented, a chart will be limited to the lowest level of observation services. Educating the physicians and coding staff on required documentation is essential to ensure compliance.

Observation care offers physicians an additional opportunity to provide services beyond the typical E/M codes associated with straightforward full hospital admission. These codes allow us to report services that are a bit more tailored to the patient’s specific clinical condition. Closely watch the documentation to ensure appropriate capture of services.

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One Response to “Observation Coding”

  1. Katrina Brown says:

    I have a question. What if the patient is admitted on the 1st and the provider does not see them until the 2nd and they also get discharged on the 2nd? Its not an admit and discharge same day but the provider has documentation for just the 2nd. An H&P and a discharge summary. What would the charge be then? Is it the admit only or the discharge only?

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