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Outpatient Observation Services: Reporting Time Correctly

Since the implementation of the CMS 2014 OPPS Rule, a steadily-increasing number of JK hospital providers are billing for outpatient observation services. As per the CMS IOM Publication 100-04, Medicare Claims Processing Manual, Chapter 4, Section 290.1, CMS maintains a clear expectation that observation services should not exceed a 48-hour timeframe (except in rare and carefully documented circumstances, when the limit may reach 72 hours).  Hours of observation care are to be counted from the time documented in the medical record that coincides with the physician’s order for observation services.  Observation time cannot be counted retroactively, regardless of the time that other hospital care was originally initiated, often in the ED.

When seen within the context of the "2-Midnight Rule," CMS considers most observation services exceeding 48 hours to be medically unnecessary. Patient’s requiring medically-necessary care in the hospital setting, when rendered beyond the second midnight after the patient’s arrival, are generally considered best suited for inpatient admission.

Providers should submit claims for all hours of medically necessary observation services.

Once medical necessity for observation services is no longer evident, subsequent hours of time spent in the hospital are to be billed on a separate claim line as “noncovered.” This will permit the hospital to describe the full course of the patient’s stay, during which true observation time may be reimbursable and other subsequent custodial time will be denied.

Below is a chart that may be helpful in defining coding and billing for these services. This information should be shared with all appropriate staff members and any procedures/policies should be updated as applicable.

Service Who May Bill Other Factors
ED E&M

CPTs: 99281-99285
ED MD or NPP Separately payable from initial observation if performed by a different provider/different group
Initial Observation

CPTs: 99218-99220
Primary hospitalist or attending physician with Modifier AI Not separately payable if ED visit and initial observation performed by same specialty/same group
Initial Observation/Inpatient Admission same DOS

CPTs: 99221-99223
Primary hospitalist or attending physician with Modifier AI If inpatient admission occurs same DOS as initial observation, bill only initial admission when performed by same provider/same DOS
Initial Observation/Admission Next DOS

CPTs: 
99218-99220
99221-99223
Primary hospitalist or attending physician with Modifier AI Initial observation may be billed followed by initial hospital admission on next or subsequent DOS, same provider
Initial Observation/Same Day Discharge

CPTs: 99234-99236
Primary hospitalist or attending physician with Modifier AI Use if discharging from observation to home, same DOS

Do not bill  observation discharge code 99217
Subspecialty Consultation-  Initial Observation Visit

CPTs: 
99201-99205 (new pt)
99211-99215 (seen within 3 years)
Subspecialist requested by primary hospitalist or attending physician


** Consulting clinician needs to ascertain inpatient vs. outpatient status
Do not bill initial observation codes; these are reserved for the physician of record.
Subsequent Observation Care

CPTs: 99224-99226
Primary hospitalist or attending physician; Modifier A1 is not necessary on subsequent care claims.

Consulting clinicians may bill care on subsequent Observation days using appropriate outpatient codes.
May be billed once per day for each subsequent observation DOS

Do not bill on same DOS as either hospital admission or observation discharge
Observation Discharge

CPT: 99217
Primary hospitalist or attending physician; Modifier A1 is not necessary on discharge claims
Bill only for observation discharge from the facility

Do not bill when initiating hospital admission
Outpatient Observation Services: Reporting Time Correctly
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