Factor in the Variables of Observation Coding

Review common scenarios to get the big picture of observation status requirements.

By Kerin Draak, MS, RN, WHNP-BC, CPC, CPC-I, CEMC, COBGC and G.J. Verhovshek, MA, CPC

Coding for observation services depends on several variables, including the time a patient spends in observation care and whether he or she is subsequently admitted as an inpatient. A review of some common scenarios will help you put appropriate coding and documentation requirements into perspective.

Evaluation and Management – CEMC

Observation Followed by Discharge

Consider situations in which the patient remains in observation (outpatient status), without an inpatient admission.

The patient is placed under observation status and is discharged on the same date of service.

Proper coding will depend on whether the observation status lasted fewer than, or more than, eight hours.

— For observation status lasting fewer than eight hours, report initial observation care (99218-99220), as appropriate to the level of care documented.

— For observation status lasting more than eight hours, report the appropriate level of service for observation care, including discharge, from codes 99234-99236.

For example, a pregnant patient presents to the hospital at 37.2 weeks gestation thinking she is in labor. It had been a very hot day, and she hadn’t been drinking much water. An external fetal monitor was applied, which demonstrated that she was having contractions every 10-15 minutes. The provider evaluated her at admission and found no cervical changes. After some fluids and rest, her contractions ceased. She was sent home after nine hours of observation care.

For this encounter, you would bill for initial observation care only, choosing the appropriate code from range 99218-99220, because the physician did not meet with the patient face-to-face to discharge her. If the physician had returned to the hospital to perform and document a discharge service, you would instead select an appropriate code from range 99234-99236.

The patient is placed under observation and is discharged on the next date of service.

— Report 99218-99220, as appropriate to the level of service, for observation care on the initial date of service, and 99217 for observation discharge on the following day.

The patient remains under observation for three or more dates of service.

— Report 99218-99220 for observation care on the initial date of service, and 99217 for the final date of service. For each day in between, report 99224-99226 for subsequent observation care.

Don’t expect to report subsequent observation care codes often. As explained in the Medicare Claims Processing Manual, chapter 12 (Physicians/Nonphysician Practitioners), section 30.6.8:

In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours. In the majority of cases, the decision whether to discharge a patient from the hospital following resolution of the reason for the observation care or to admit the patient as an inpatient can be made in less than 48 hours, usually in less than 24 hours.

An example of when you might use a subsequent care code is when a patient is placed under observation very late on the first date of service, observed all day on the second date of service, and released early on the third date of service.

Note that the first date of service is the day on which the face-to-face service is provided, regardless of when the “paperwork” is done. For example, if the physician examines the patient Friday at 11:30 p.m., the date of service is Friday, even if the hospital doesn’t officially process the patient until Saturday morning. Similarly, even if the physician documents the service on Saturday, the date of service remains Friday.

When Inpatient Admission
Follows Observation

When a patient’s status changes from “observation” to “inpatient,” the supervising provider should document the reason(s) why. Let’s consider some situations in which a patient under observation is admitted as an inpatient.

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

— Report initial hospital care (99221-99223). Per the Medicare 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.”

For example, if the provider first sees a patient in the office and, after performing an evaluation and management (E/M) service, decides to admit the patient to hospital, the provider doesn’t need to repeat the work performed in the clinic and cannot bill both an office/outpatient E/M service and an initial hospital E/M service. The provider does, however, need to document the work performed.

The patient is assigned to observation status, and is admitted as an inpatient on the next calendar date.

Report initial observation care (99218-99220) for observation on the first day, and initial hospital care (99221-99223) for the admission service on the next day.

The patient remains under observation for two or more dates of service prior to admission as an inpatient.

— Report 99218-99220 for observation care on the initial date of service. For each day in between, report 99224-99226 for subsequent observation care. Report initial hospital care (99221-99223) for the date of service on which the patient is admitted to inpatient care. Do not report the discharge from observation (99217).

For example, a patient is placed under observation late on Saturday. She remains in observation all day Sunday, awaiting test results. On Monday (the third day), tests reveal the patient needs surgery, and she is admitted to inpatient status.

Reporting Requirements
for Observation Care

Only one provider at a time—the supervising provider—may bill for observation services. Per the Medicare Claims Processing Manual:

Contractors pay for initial observation care billed by only the physician who ordered hospital outpatient observation services and was responsible for the patient during his/her observation care. … All other physicians who furnish consultations or additional evaluations or services while the patient is receiving hospital outpatient observation services must bill the appropriate outpatient service codes.

For example, if an internist orders observation services and asks another physician to additionally evaluate the patient, only the internist may bill the initial and subsequent observation care codes. The other physician who evaluates the patient must bill the new or established office or other outpatient visit codes as appropriate.

The billing provider must personally write the order for observation services, progress notes, and discharge notes; and documentation must substantiate that the billing provider was present and personally performed the services.

You cannot make the assumption that being admitted to a hospital means being admitted as an inpatient. There is a difference between inpatient and observation status. Medicare Part A rules apply if the physician writes an order for inpatient but Medicare Part B rules apply if the physician writes an order for observation. Observation is considered an outpatient status and the patient order plays a critical role in hospital reimbursement and billing since the inpatient hospital admission and medical review criteria (also known as the two-midnight rule) was released on Aug. 2, 2013 in the 2014 Inpatient Prospective Payment System/Long-Term Care Hospital final rule (CMS-1599-F).

Documentation to report observation services must include a medical observation record containing:

  • Dated and timed physician’s orders regarding the observation services the patient will receive
  • Nursing notes
  • Progress notes prepared by the physician while the patient received observation services

The above is in addition to any documentation resulting from an emergency department or other outpatient encounter.

Observation Service Codes

99217 Observation care discharge day management (This code is to be utilized to report all services provided to a patient on discharge from “observation status” if the discharge is on other than the initial date of “observation status.” To report services to a patient designated as “observation status” or “inpatient status” and discharged on the same date, use the codes for Observation or Inpatient Care Services [including Admission and Discharge Services, 99234-99236, as appropriate.])

99218 Initial observation care, per day, for the evaluation and management of a patient which requires these 3 key components: A detailed or comprehensive history; A detailed or comprehensive examination; and Medical decision making that is straightforward or of low complexity.

99219 Initial observation care, per day, for the evaluation and management of a patient, which requires these 3 key components: A comprehensive history; A comprehensive examination; and Medical decision making of moderate complexity.

99220 Initial observation care, per day, for the evaluation and management of a patient, which requires these 3 key components: A comprehensive history; A comprehensive examination; and Medical decision making of high complexity.

99224 Subsequent observation care, per day, for the evaluation and management of a patient, which requires at least 2 of these 3 key components: Problem focused interval history; Problem focused examination; Medical decision making that is straightforward or of low complexity.

99225 Subsequent observation care, per day, for the evaluation and management of a patient, which requires at least 2 of these 3 key components: An expanded problem focused interval history; An expanded problem focused examination; Medical decision making of moderate complexity.

99226 Subsequent observation care, per day, for the evaluation and management of a patient, which requires at least 2 of these 3 key components: A detailed interval history; A detailed examination; Medical decision making of high complexity.

99234 Observation or inpatient hospital care, for the evaluation and management of a patient including admission and discharge on the same date, which requires these 3 key components: A detailed or comprehensive history; A detailed or comprehensive examination; and Medical decision making that is straightforward or of low complexity.

99235 Observation or inpatient hospital care, for the evaluation and management of a patient including admission and discharge on the same date, which requires these 3 key components: A comprehensive history; A comprehensive examination; and Medical decision making of moderate complexity.

99236 Observation or inpatient hospital care, for the evaluation and management of a patient including admission and discharge on the same date, which requires these 3 key components: A comprehensive history; A comprehensive examination; and Medical decision making of high complexity.

Kerin Draak, MS, RN, WHNP-BC, CPC, CPC-I, CEMC, COBGC, has been in the healthcare field for nearly 22 years. She served on the AAPC National Advisory Board from 2009-2013 and serves as the director of ICD-10 implementation for the Hospital Sisters Health System. She is a member of the Green Bay, Wis., local chapter.

G.J. Verhovshek, MA, CPC, is managing editor at AAPC.

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Renee Dustman

Renee Dustman

Renee Dustman is executive editor at AAPC. She has a Bachelor of Science degree in Journalism and a long history of writing just about anything for just about every kind of publication there is or ever has been. She’s also worked in production management for print media, and continues to dabble in graphic design.
Renee Dustman

About Has 423 Posts

Renee Dustman is executive editor at AAPC. She has a Bachelor of Science degree in Journalism and a long history of writing just about anything for just about every kind of publication there is or ever has been. She’s also worked in production management for print media, and continues to dabble in graphic design.

2 Responses to “Factor in the Variables of Observation Coding”

  1. Margo Kings says:

    I would like to confirm and need some resources to produce to confirm this:
    I work for a hospital base coding facility. We bill hospital physician services (group), on 06/12/2016 @ 3:48am patient was admitted under OBSERVATION by Doctor A. Doctor B followed up on the patient on 06/12/2016 @ 13:50pm and patient was discharged on 06/12/2016.

    Issue is which Observation Code to bill? Coder or Coders came up with 99219 by Doctor A and 99217 for Doctor B.

  2. gem says:

    99234-99236 Adm and D/C same day. Services provided by the supervising phy or other healthcare prof in conjunction with initial obs when performed on same date. Hope this helps.

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