Observation Coding in Brief

Observation Coding in Brief

When a provider admits a patient to observation, he or she is evaluating a patient’s condition to see if it resolves (in which case the patient can go home) or worsens (in which case the patient may be admitted). To qualify for observation, the service must be medically necessary. The physician must date and time the admission orders to observation. There must be periodic assessments on the patient’s condition, including nurse’s notes and provider progress notes. Observation usually lasts 24 hours and rarely exceeds 48 hours.
Multiple scenarios may occur when the patient is admitted to observation. Different code categories report the various types of observation encounters.

  • Initial Observation Care (99218-99220): Used only by the physician ordering the observation care
  • Discharge from Observation (99217): Used when the discharge from observation occurs on a different DOS than the admission
  • Admission and Discharge on the Same Date of Service (99234-99236): If the patient is admitted and discharged on the same DOS.

Usually, the patient is admitted to observation during an emergency department encounter or clinic/office visit. In this case, report only the observation code when the same provider (or same group) provides the care in both sites on the same date of service. Do not report an ED and observation visit if the same physician or same group physician admits the patient to observation care on the same DOS.
If an observation encounter spans three days, report an initial observation code for the first day, subsequent observation care (99224-99226) for the second day, and 99217 for the discharge on the third day.
When the patient’s condition requires an inpatient admission on the same date that observation was initiated, report an initial hospital care code (99221-99223) only. Do not report an observation code and initial inpatient code for the same date of service. If the services occur on different dates of service, report both services.

John Verhovshek
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John Verhovshek, MA, CPC, is a contributing editor at AAPC. He has been covering medical coding and billing, healthcare policy, and the business of medicine since 1999. He is an alumnus of York College of Pennsylvania and Clemson University.

No Responses to “Observation Coding in Brief”

  1. Maria Reed says:

    In your article you mentioned that “If an observation encounter spans three days, report an initial observation code for the first day, an outpatient visit (99211-99215) for the second day, and 99217 for the discharge on the third day.” Why can’t we use the subsequent observation codes (99224-99226) for the second day ?
    Thank you!

  2. Alex McKinley says:

    Hi Maria,
    Thank you for bringing the error to our attention. The article has been updated with the correct information.
    Alex McKinley
    Sr. Communications Manager, AAPC

  3. Susan Eisenhauer says:

    If I do a Laparoscopic Hysterectomy, most insurance companies will not authorize hospital stays. Can I do the surgery AND then use observations codes?

  4. Donna Michals says:

    I struggle with use of the term “admitted to observation”. A patient is an outpatient receiving observation services. Using the term admitted to observation creates further confusion. It may seem trivial but it is a very important distinction.

  5. Lisa Harvey says:

    When the ED physician admits the patient to observation at 7:00 a.m. and another physician discharges the patient 7:00 p.m. on the same day, how do you code for the physicians? I believe the ED physician would bill for an observation admit and the DS physician would be for the discharge. Is that still correct when the admit and discharge are on the same day?

  6. Lisa Harvey says:

    I am specifically talking about E & M codes.

  7. Cindy Robert says:

    What is the coding rule used when coding Observation discharge diagnosis vs diagnosis