If they are admitting the patient to either inpatient or observation, they are using those codes correctly. Even if the encounter started in the ER, when the hospitalist makes the decision to admit the patient, the patient's status changes, the POS will be either IP or OBS (OP), and you bill the correct codes for this new status.
If, however, they are only seeing them in the ER and the patient is going home, then you are correct, and they need to use the ER or OP codes.
Hope this helps,
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