A Quick Guide to Observation Services

Medicare Claims Processing ((PUB. 100-04) Chapter 4 – Part B Hospital (Including Inpatient Hospital Part B and OPPS) 290 – Outpatient Observation Services) defines observation services as “… ongoing short term treatment, assessment, and reassessment … furnished while a decision is being made regarding whether patients will require further treatment as hospital inpatients …”

Reporting requirements for observation services are exacting, and vary depending on how long the patient is held in observation, and whether the patient is admitted as an inpatient. Here’s a quick breakdown of how to code the most common scenarios:

Certified Inpatient Coder CIC

Scenario 1: A patient receives observation care for less than eight hours and is discharged on the same calendar date (e.g., patient is assigned observation status at noon and is discharged at 5:00 pm on the same day).

  • You may report: Initial observation care (99218-99220). You may NOT report the observation discharge service (99217 Observation care discharge day management).

Scenario 2: The patient remains in observation eight hours or more, and is discharged on the same calendar date (e.g., patient is assigned observation status at noon and is discharged at 10 pm on the same day).

  • You may report: Observation or Inpatient Care Services (99234-99236). Do NOT report observation discharge (99217).

Scenario 3: A patient receives observation care and is discharged on a different calendar date.

  • You may report: Initial Observation Care (99218-99220) and observation care discharge (99217).

Scenario 4: The patient is assigned to observation status, and is admitted as an inpatient later on the same calendar date.

  • You may report: Only Initial Hospital Care (99221-99223). Per the Claims Processing Manual, “Medicare payment for the initial hospital visit includes all services provided to the patient on the date of admission by that physician, regardless of the site of service.”

Scenario 5: The patient is assigned to observation status, and is admitted as an inpatient on a different calendar date.

  • You may report: Initial Observation Care (99218-99220) for observation on the first day, and the initial hospital visit (99221-99223) for the admission service on the next day.

Tip: If a patient’s status changes from “observation” to “inpatient,” the provider must document the reason(s) why. The chief complaint might be the same, but the history of present illness (HPI) must clarify the reason (i.e., location, quality, severity, duration, timing, content, modifying factors, associated signs and symptoms) for the status change. A new exam (detailed or comprehensive) and medical decision-making also must be documented.

CPT® provides Subsequent Observation Care codes (99224-99225) for those cases when a patient is held in observation for more than 24 hours. For example, a patient is placed under observation on noon, Tuesday, and is discharged 6 a.m., Thursday. Report an initial observation service (99218-99220) for Tuesday, a subsequent observation service on Wednesday, and observation discharge (99217) on Thursday. Never report a subsequent observation service on the same calendar day as the observation discharge or an initial hospital service (99221-99223).

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3 Responses to “A Quick Guide to Observation Services”

  1. Georgeann Edford says:

    Your citation in the Medicare Claims Processing Manual is incorrect. It should read: Medicare Claims Processing (PUB. 100-04) Chapter 4 – Part B Hospital (Including Inpatient Hospital Part B and OPPS) 290 – Outpatient Observation Services

  2. Rob Pachciarz says:

    Hi Georgeann,

    Is her citation really that different than yours?

  3. Christie says:

    These are the codes for the hospitalists or ER docs, right? So what about the consult code and possible follow up codes for a doc that has been asked to see the patient while in O/P status? Wouldn’t those codes be new patient (99222 or 99223) and f/u (99232or 99233)?

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