Home  |   Subscribe  |   Resources  |   Reprints  |   Writers' Guidelines

March 2013

Observation Services: Many Shades of Gray
By Mike Bassett
For The Record
Vol. 25 No. 5 P. 14

Unique challenges give hospitals and physicians little room for error when it comes to correctly documenting these encounters.

There is one thing that’s certain about coding for observation services: It can be confusing. Issues surrounding the coding, billing, and payment for observation services, which have been evolving for two decades, are still being clarified by the Centers for Medicare & Medicaid Services (CMS), according to Duane Abbey, PhD, CFP, president of Abbey & Abbey Consultants, who points out that “a small book could be written on observation services and all of the variations.”

According to Betsy Nicoletti, MS, CPC, coauthor of Codapedia.com, one complicating factor is that while a hospital ultimately determines the category of a patient’s admission status, the rules are clear that a patient’s observation stay begins and ends with a physician’s order. “When a patient arrives [at the emergency department], we don’t know if it’s going to be an inpatient or observation admission unless it’s really obvious,” she says. “There is really a big gray area there. I would say that 50% of admissions could go either way.

“Only the case manager knows for sure,” she adds. “And the chances are they are going to be bugging a physician morning, noon, and night [to change status] because the physician has to write the order.”

Medicare, according to its benefit policy manual, says an observation is “a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment, before a decision can be made regarding whether a patient will require further treatment as hospital inpatients or if they are able to be discharged from the hospital.”

According to Deborah Hale, CCS, CCDS, president and CEO of Administrative Consultant Service, observation stays of 24 or fewer hours “have traditionally been the benchmark,” since they usually give physicians enough time to determine whether the patient’s underlying clinical condition justifies inpatient admission.

However, observation stays longer than 24 hours do occur, notes Dave Fee, product marketing manager for 3M Health Information Systems. “Typically, 48 hours is what people think of as a maximum,” he says, pointing out that since auditors have started putting short inpatient stays under the microscope, hospitals have gotten “a little gun shy” and have been more likely to admit and treat patients on an observation basis. According to the Medicare Benefit Policy Manual, chapter 6, section 20.6, observation services should usually last fewer than 24 hours, and no more than 48 hours, unless it is a “rare and exceptional” case.

Fee notes that observation services are exactly that—a service. “It’s a service that’s provided, so there has to be a physician order around it,” he explains.

A Case Study
Abbey points out that coding and billing for observation services varies greatly between physicians and hospitals. For example, if a physician orders observation services for a patient on Wednesday, he or she uses CPT codes 99218 to 99220.

These initial observation codes apply to the evaluation and management services that the physician/provider supplies on the day when observation status is initiated. Code 99218 is assigned to patients with medical problems of low severity and requires a comprehensive patient history, a detailed exam, fairly simple medical document management, and about 30 minutes spent by the patient’s bedside or vicinity. Codes 99219 and 99220 are for problems of moderate and higher severity, respectively, involving more complicated medical document management and more time by the bedside.

The following day, the physician utilizes subsequent observation care codes 99224 to 99226 (depending on the patient’s condition) for observation services provided on dates other than the initial or discharge date. Code 99224 is assigned to stable, recovering, or improving patients and usually requires 15 minutes by the bedside. Code 99225 is for patients who have developed minor complications or are not responding well to therapy, and requires at least 25 minutes by the patient’s bedside or vicinity. Code 99226 is assigned to patients with major complications or who have developed new problems, and requires at least 35 minutes by the bedside.

Finally, on Friday, if the patient is discharged from observation, the physician will use observation discharge code 99217, which includes services on the day of discharge, such as a final examination.

While there are numerous variations on this type of case study, “The CPT coding structure has been established to enhance physician coding, billing, and reimbursement for observation services,” Abbey says. “Note that from the physician’s perspective, there have been three encounters, one on each day.” In fact, he says three different physicians could be involved in the three different encounters.

When examined from a hospital perspective, coding and billing for observation changes significantly. For example, a hospital views the same scenario as the one above as being a single encounter spanning three dates of service rather than three separate encounters.

“This makes sense because the hospital care is continuous from placement in observation to release from observation,” Abbey says. “The hospital will report the number of hours of observation care over the three dates of service. For the Medicare program, G0378 will be used to report these hours. Other private third-party payers may have different coding requirements, but generally the billing will be by the hour.”

Other Scenarios
What happens in cases that are resolved in one calendar day or those that run from one calendar day to the next?

According to CPT guidelines, if a patient is admitted to the emergency department (ED) in the morning, admitted to observation in the afternoon, and then discharged that night, the hospital should assign the appropriate same-day observation codes (99234 to 99236) for combined ED/observation services. The CPT observation discharge code 99217 is used only when a patient is discharged on observation status on a different calendar date.

If a patient is admitted to the ED in the evening and then admitted and discharged from observation the next day, the appropriate ED evaluation management codes of 99281 to 99285 are assigned for the first day, and the appropriate same-day observation codes of 99234 to 99236 are assigned for the second day. Again, the discharge code 99217 is not used.

Other scenarios present specific challenges to physicians, Abbey says. For instance, a physician one evening may send a patient to the ED, but the ED physician may not have privileges to place that patient in observation. “Thus, the physician is contacted and the paperwork is filled out in the physician’s name, and the physician sees the patient in the morning,” he says. “In this set of circumstances, the physician must be careful to code and bill the initial care [99218 to 99220] on the date that the physician actually provided the services, which is the morning after the patient has gone to the emergency room.”

Another variation occurs when a physician sends a patient to the hospital with orders to place the patient in observation, which is referred to as a direct admission to observation.

“At the hospital, nursing staff will provide a thorough assessment and code G0379 for these services, and hopefully the physician has provided documentation along with the order,” Abbey says. “For the physician, CPT provides guidance on proper coding of observation care when the initial encounter is in a different setting. On the hospital side, Medicare will pay separately for the G0379 only if the observation is less than eight hours. If observation lasts more than eight hours, the payment for the nursing assessment is packaged into the composite payment for the observation services that are actually considered as extended evaluation and management services.”

Counting Hours
In addition to the requirement to have a physician order to place a patient in observation, hospitals must meet other conditions to receive Medicare payment for observation services. One condition is that observation stays must last a minimum of eight hours and be documented in the “units” field on the claims form.

This is where the process can get confusing, since counting hours is not a straightforward procedure, Abbey says. For example, observation hours need to be adjusted in cases where there are interruptions in observation services, such as when a patient receives other separately billed procedures that require active monitoring, including invasive procedures, physical therapy, or radiation treatment.

According to Fee, when it comes to facility coding, observation services don’t start before the observation order is timed and signed by the physician. For example, take the situation in which an electrocardiogram and some lab work are performed on a patient visiting the ED complaining of chest pain. If the physician does not write an order for observation, then that period of time would not be considered an observation.

CMS rules state that observation ends when all medically necessary services related to that care end, including any nursing follow-up care provided after discharge orders are written. However, observation hours do not include conditions such as the amount of time a patient spends in the observation area waiting for transportation home or for a transfer to another healthcare facility.

There are other requirements as well. While in observation, the patient needs to be under the care of a physician or nonphysician practitioner. This care must be well documented in the form of nurses’ notes, patient progress reports, and discharge notes, all of which must be dated, timed, and signed.

While observation services typically last eight hours, the trend is toward longer stays. “And the longer patients stay in observation, the more complicated the billing process becomes,” says Hale, pointing out that unlike someone admitted on an inpatient basis whose charges are posted and generated, observation services must be coded separately. For example, if a patient receives an injection or an IV infusion, the nurse’s notes must document when, where, and how that injection or infusion was given.

To complicate matters, Hale says the same rule applies to patients presenting in the ED. “Most hospitals understand at this point the importance of having a coder dedicated to addressing just the infusions and injections given to patients in an emergency department, and they’ve mastered that fairly well,” she says. “But the process falls apart once the patient goes into observation.”

It’s difficult, Hale says, for a nurse to tell the difference between an inpatient and an observation patient who’s still in a bed on a regular floor. “It’s hard for a nurse who’s taking care of both observation and inpatient to recognize they are treating an observation patient, and that she needs to document the start and stop times for an injection or infusion,” she notes.

While it’s likely that the ED portion of treatment will be coded and billed correctly, Hale says once that patient has gone into observation, those injections and infusions “are probably going to have be billed and coded differently than they were originally.”

Condition Code 44
Fee points out there are cases when the patient’s admission status can change. For example, if a physician admits a patient to inpatient status but the utilization review committee or team later determines that the level of care provided in this case didn’t meet the hospital’s admission criteria, then they can use condition code 44 to change the status. To do so, the following conditions must be met:

• The change in patient status from inpatient to outpatient is made prior to discharge or release while the beneficiary is still a patient of the hospital.

• The hospital has not submitted a claim to Medicare for the inpatient admission.

• A physician concurs with the utilization review committee’s decision.

• The physician’s concurrence with the utilization review committee’s decision is documented in the patient’s medical record.

According to the CMS, in this kind of situation the duration and particulars of the care provided “should be treated as though the inpatient admission never occurred and should be billed as an outpatient episode of care.”

The change in status can have financial implications for a physician who selects a different category and codes than those submitted by the hospital, Nicoletti explains, “particularly when hospitals can change the status even after a patient is discharged.” She says, “I used to tell doctors to bill their hospital visits every day and not wait until a patient is discharged. But now they have to wait until that patient is discharged, then check back on the status and select the right code.”

As for the opposite scenario, the CMS has been adamant that a facility can’t retroactively change a patient’s status from observation to inpatient. However, Hale says a physician can write an inpatient admit order for a patient receiving observation services and have the inpatient admission take effect on the date and time of the admission.

— Mike Bassett is a freelance writer based in Holliston, Massachusetts.