Observation status services provided to outpatients occur most frequently after surgery or a visit to the emergency department.
Patients are usually placed in “observation status” in order to receive further treatment and monitoring before a decision is made concerning their next placement (i.e., admission to the hospital or discharged home).
Clinically, it typically doesn’t require more than 24 hours of observation to render a decision concerning a possible admission or discharge. According to Medicare justifying an observation stay of more than 24 to 48 hours is very rare.
The observation services provided are not necessarily controlled by the location or setting within the hospital but by the outpatient status and the type of patient care provided. It is not uncommon for a patient to be observed in the emergency department, in a designated unit near the emergency department, or in an intensive care or other hospital unit in the facility.
Following the implementation of the Medicare hospital inpatient PPS in 1983, facilities began using “observation” as an administrative mechanism to care for patients who, if admitted as inpatients, might have their admission questioned.
Occasionally, patients were kept in observation for days and weeks, which resulted in both excessive payments from the Medicare program and excessive co-payments from the beneficiary.
Moreover, before the implementation of OPPS, the payment for observation care was on a reasonable cost basis, which frequently gave hospitals a financial incentive to keep patients in “observation status” even though they were clinically being treated as inpatients. In response to this practice, Medicare revised its manuals in November 1996; limiting covered observation services to no more than 48 hours.
The cost for all observation services provided in the outpatient setting, even those provided in excess of 48 hours, are included in the initial APC payment rates.
Currently, observation services are not paid separately; that is, they are not assigned a separate APC. Instead, cost for observation services are packaged into payments for services with which the observation was billed (e.g. emergency room visit, surgery).
Hospitals are required to report observation charges under revenue code 762 “Observation Room”, to properly capture cost data for future updates. The appropriate HCPCS codes, if reported, are 99217 through 99220 and 99234 through 99236.
Revenue code 760 “Treatment/ Observation Room”, should be reported by the hospital when ancillary services are performed while the patient is in observation status. The hospitals should not report these services under revenue code 762. Any laboratory, radiology, etc. services performed should be reported under revenue codes 30X, 31X, 32X etc. as appropriate.
Let’s take a look at some examples of how observation services are coded:
This patient was admitted to day surgery for a biopsy of a neck mass. Following the biopsy, the patient continued to complain of neck pain and was admitted to observation Observation status (continued from page 1) for continued monitoring. The pain eventually subsided and the patient was discharged the next day. What are the appropriate code assignments for this encounter?
The reason for the initial encounter was for a biopsy of the neck mass. Therefore, assign code 784.2, Swelling, mass, or lump in head and neck, for the neck mass. A certain degree of pain is common following a surgical procedure, so no additional code would be assigned for the neck pain. Report CPT code 99218, for the observation encounter and code 21550, for the biopsy of the neck.
A patient was seen in the emergency department for complaints of chest pain. Nitroglycerin was given sublingually, however, the chest pain did not resolve. The patient’s cardiac enzymes were slightly elevated. Therefore, the patient was admitted to observation for further treatment and monitoring. Several hours later, the chest pain subsided and the patient was discharged home with a diagnosis of angina. What are the appropriate code assignments for this encounter?
Assign code 413.9, Other and unspecified angina pectoris, for the angina. The appropriate Emergency Department, Evaluation and Management level (99281-99285) would be reported based on your facility’s E/M structures that would be based on the utilization of your hospital’s resources. Code 99218 may also be reported for the observation services provided. ♦