Hospital Observation Services in Brief

Hospital Observation Services in Brief

If a patient has a condition that needs to be monitored to determine a course of treatment, they may be admitted to hospital observation status. For example, if a patient presents to the emergency department (ED) with acute abdominal cramping, the provider can admit the patient to observation status. After a period of monitoring, the patient may be discharged, or—if the condition worsens—may be admitted to the hospital as an inpatient for additional treatment.

According to the Medicare Benefit Policy Manual (Section 20.6.A.), hospital observation services are “a well-defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and re-assessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital.”

The patient is not required to be in a specific area of the hospital to be deemed in “observation status,” and there is no distinction between a new or established patient for observation services.

When the patient is seen at another site of service (e.g., Emergency Department), and observation status is initiated at the site of service, all E/M services provided by the admitting physician are considered to be part of the initial observation care and not reported separately.

Example: A patient presents to the emergency department with chest pain. After evaluation of the patient, the provider determines the patient has a pending infarction and admits the patient to observation status. In this case, the provider would only report the admission to the observation status and not the emergency department visit.

Hospital observation includes three types of service: Observation Care Discharge Services (99217 Observation care discharge day management); Initial Observation Care (99218-99220); and, Subsequent Observation Care (99224-99226).

Typically, observation stays are between 24 and 48 hours. The initial observation care is reported only by the physician admitting the patient to observation status. Commonly, additional providers of specific specialties will be asked to consult on the patient’s condition. These providers should report the outpatient consult codes or subsequent observation codes, as appropriate to the payer and the provider’s role.

Subsequent Observation Care is reported for subsequent visits for the date of services after the initial observation status admission visit to the patient during that observation stay. This E/M subcategory may be reported by more than one physician on the same date of service, but each physician may report the code only once, per day. When reported by the admitting physician, the subsequent observation codes are used when the patient is seen on a day other than the date of admission or discharge.

Observation Care Discharge Services are used to report the final exam and discharge of the patient. This code is not to be reported on the same date as an inpatient admission. Should the provider decide to admit the patient to the hospital from observation, the observation discharge services are considered part of the inpatient admission and are not reported separately.

The Initial Observation Care and the Observation Care Discharge should be reported separately only if they occur on separate dates of service. If they occur on the same date of service, report instead a code from the Observation or Inpatient Care Services (Including Admission and Discharge Services), range 99234- 99236.

Evaluation and Management – CEMC

Read more about applying observation codes, here.

John Verhovshek

John Verhovshek

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.
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.

One Response to “Hospital Observation Services in Brief”

  1. Robin B Brigman says:

    Mr. Verhovshek – When a patient is admitted to the hospital but does NOT stay for the two midnight rule (CMS) — can the hospital change the place of service from inpatient to outpatient? I have read that the place of service can be changed but that these requirements must be met:
    The change in patient status from inpatient to outpatient is made prior to discharge or release
    The hospital has NOT submitted a claim to Medicare for the inpatient admission
    The attending physician must concur with the status change and document it in the patient’s medical record
    Notification must be given to the patient within two days of the decision
    IF the hospitalist is contracting to the hospital — how would all these criteria be met? Any information you can offer would be GREATLY appreciated.

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