Admissions VS. Observation
Black and White Answers to
Admissions Criteria and
Observation Services
Presented by: HomeTown Health
October 8, 2009
Medicare Sets the
Record Straight
with Hospitals &
Physicians
Transmittal 1760 - July Update of the
OPPS published June 23, 2009

Item 8. Clarification Related to Observation Services
CMS updated Pub.100-04, Medicare Claims Processing Manual,
chapter 4, §290, and Pub.100-02, Medicare Benefit Policy Manual,
chapter 6, §20.6, to clarify that a hospital begins billing for
observation services, reported with HCPCS code G0378, at the clock
time documented in the patient’s medical record, which coincides
with the time that observation services are initiated in accordance
with a physician’s order for observation services.
EFFECTIVE OCTOBER 1, 2009
NO MORE
“Admit to Observation”
Term ADMISSION removed from Medicare
manual regarding Observation Services

Editorial changes to the manuals remove references to “admission”
and “observation status” in relation to outpatient observation services
and direct referrals for observation services. These terms may have
been confusing to hospitals. The term “admission” is typically used to
denote an inpatient admission and inpatient hospital services.

For payment purposes, there is no payment status called
“observation”, observation care is an outpatient service, ordered by a
physician and reported with a HCPCS code.
Transmittal 1760, issued June 23, 2009
New Language on
Orders required after
October 1st
New Language on Orders
required after October 1st


Transmittal 1760, issued June 23, 2009, didn't change the
appropriate use of observation status, but it did change the
language by which physicians order these services, says
Deborah Hale, CCS, president of Administrative Consultant
Services LLC.
Physician documentation on orders for
patients to receive observation services
should state "referred for observation
services”
New Language on Orders
required after October 1st

It's important to make sure the language is correct so that
the Medicare Administrative Contractors (MAC) or Recovery
Audit Contractors (RACs) will be able to determine the
physician's intended level of care and avoid inappropriate
claims that result when a physician's order is worded "admit
for observation”

"The transmittal made it clear that the hospital staff cannot
change a physician's order for inpatient admission or take
sole responsibility for determining the patient's level of care.
Only a physician can change a patient from inpatient status
to observation services
POLL QUESTION

Were you aware of this new Medicare
rule regarding Observation going into
effect on October 5th?
How does Medicare
define
“Observation”
Purpose of Observation
Observation is
used to evaluate a
patient’s condition
in order to
determine the
need for acute
inpatient
admission.
CMS Definition of Observation:
CMS defines observation status as 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 patients will
require further treatment as hospital
inpatients or whether they can be
discharged from the hospital “.
CMS Definition of Observation:



It is rare that an observation status would span
over 48 hours. Usually the determination to
discharge or admit the patient to the hospital can
be made within 24 hours.
Medicare does not specify what type of bed or unit
a patient must be in if they are observation status.
Medicare coverage for observation services
requires at least 8 hours of monitoring.
Observation time begins at the time the physician
writes the order and it ends when the patient is
actually discharged from the hospital or admitted
as an inpatient. This time DOES NOT include the
time a patient may spend waiting on
transportation to get home.
Observation Services
KEY Questions to ASK



In what condition will the patient most
likely be tomorrow?
“Better” =  Observation
Is it risky to send the patient home
today?
“Yes” =  Observation
Is it likely I will know whether to admit or
send the patient home by tomorrow?
“Yes” =  Observation
Observation Services
KEY Questions to ASK

Are vital signs stable?
“Yes” =  Observation

Will a diagnosis likely be made in 24 hours?
“Yes” =  Observation

Will treatment, such as IV fluids, require
standard monitoring and be complete within 24
hours?
“Yes” =  Observation
Observation Services
KEY Questions to ASK

Is the patient presenting with a symptom(s)
(e.g., chest pain, abdominal pain, TIA)
“Yes” =  Observation

Is the patient having an unusually long recovery
period following outpatient procedure (e.g., pain
management issues, cardiopulmonary concerns,
urinary retention)
“Yes” =  Observation
http://www.hpmpresources.org/Portals/1/Tools/OBV_For%20Hospitals.ppt#300,9,Purpose of
Observation
OBSERVATION: The RULE
It’s Elementary!
R/O Rule Out
=
R/O Remember
Observation
Do NOT use OBS for….





Social reasons
Physician or patient convenience
Routine prep for diagnostic testing
Routine recovery from outpatient procedures
Procedures designated as “inpatient only”
How is a Patient changed
from I/P back to
Observation?
CONDITION CODE 44
CONDITION CODE 44
In cases where a hospital utilization review committee determines that an
inpatient admission does not meet the hospital’s inpatient criteria, the
hospital may change the beneficiary’s status from inpatient to outpatient
and submit a CODE 44 claim for medically necessary Medicare Part-B
services that were furnished to the beneficiary, provided all of the
following conditions are 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 committee’s decision.
• The physician’s concurrence with the utilization review committee’s decision
is documented in the patient’s medical record followed with an order for
observation services, timed and dated.
CONDITION CODE 44
To be Used Sparingly



CMS allows the use of Condition Code 44 to address late-night or
weekend admissions when no physician or case manager is on
duty to offer guidance but emphasizes that it is to be used
sparingly.
"Use of Condition Code 44 is not intended to serve as a substitute
for adequate staff or utilization management personnel or for
continued education of physicians and hospital staff about each
hospital's existing policies and admission protocols," the
transmittal says.
In order for hospitals to file a Condition Code 44 claim, the
medical record must have documentation of a physician's
concurrence that an inpatient admission is not medically necessary
and that the patient should have been registered as an outpatient.
The reason for the change and those involved in the review
should be documented as well.
INPATIENT VS.
OBSERVATION EXAMPLE:
An 85-year-old Medicare patient with high blood pressure and
diabetes arrives in the emergency room complaining of chest
pain that resembled the pain he felt when he had an earlier
heart attack. The physician’s course of action is clear: admit
the patient to observe him. SO, does the hospital admit him or
observe him? How will the physician bill Medicare? What
CPT Code should be used? Does he meet criteria for I/P?
http://www.minnesotamedicine.com/PastIssues/February2007/PulseMedicareFebruary2
007/tabid/1701/Default.aspx
Welcome to the
Twilight Zone
of
Medicare regulations.
Why is it so important
to get it right?
Getting this call wrong can result in either charges
of Medicare fraud or a nearly $5,000 loss per
admission to a hospital. It can even result in the
entire physician payment being recouped at a
later date from the RAC or MAC.
“This is terribly confusing to providers,” says Jane
Pederson, M.D., director of medical affairs for
Stratis Health, Minnesota’s Medicare Quality
Improvement Organization (QIO)
SO WHAT IS RIGHT?
Medicare SAYS:

The Medicare Benefit Policy Manual says that physicians should
use a 24-hour period as a benchmark to distinguish between
inpatient and outpatient status, meaning if a patient needs to
stay more than 24 hours, then he or she likely qualifies as an
inpatient. However, it also says the distinction is not solely based
on the time the patient actually spends in the hospital.

The Medicare manual also says the decision to admit a patient is
a “complex medical judgment” and that physicians need to
assess the severity of the patient’s symptoms, the likelihood of a
bad outcome, and the availability of diagnostic tests and
resources before making their decision.
Billing Requirements
for Observation Care
For a physician to bill the initial observation care codes,
there must be:
a medical observation record for the patient which contains
dated and timed physician’s orders regarding the care the
patient is to receive while receiving observation care,
 nursing notes,
 and progress notes prepared by the physician while the
patient was receiving observation care.
 This record must be in addition to any record prepared as a
result of an emergency department or outpatient clinic
encounter.
http://www.cms.hhs.gov/Transmittals/Downloads/R1466CP.pdf

WHO can bill
for Observation Care?

Payment for an initial observation care code is for all
the care rendered by the ordering physician on the date
the patient received observation care. All other
physicians who see the patient while he or she is in
observation must bill the office and other outpatient
service codes or outpatient consultation codes as
appropriate when they provide services to the patient.


For example, if an internist admits a patient to observation and
asks an allergist for a consultation on the patient’s condition,
only the internist may bill the initial observation care code. The
allergist must bill using the outpatient consultation code that
best represents the services he or she provided. The allergist
cannot bill an inpatient consultation since the patient was not a
hospital inpatient.
http://www.cms.hhs.gov/Transmittals/Downloads/R1466CP.pdf
Clarifying CPT codes
for observation,
admission,
discharge
Q: How should I code services rendered to a patient admitted to
observation status on one date, then admitted as an inpatient for
two additional days?
A: The coding for the scenario you describe should be billed using:
• An initial observation care Current Procedural Terminology (CPT) code,
99218-99220, on the first date, when the patient is in observation status.
Any evaluation and management services in another setting, such as the
office or an emergency department, that are related to the admission to
observation status cannot be billed separately, as they are considered part
of the initial observation care service.
• An initial inpatient hospital care code, 99221-99223, on the second date,
on which you admit the patient to the hospital inpatient setting. You cannot
report the observation care discharge service code, 99217, in conjunction
with a hospital admission. All related evaluation and management services
are part of the initial hospital care service, regardless of the setting.
• A hospital discharge service code, 99238-99239, for the third date.
Q: What if I admit a patient to observation status and then send
him or her home the next day?
A: FIRST OF ALL, you no longer document “admit to observation” you
document, “referred for observation services”.
If the patient receives observation care on one calendar date and
discharged on the next date, bill an initial observation care code,
99218-99220, for the first date of service and the observation care
discharge service code, 99217, for the second.
Q: What about admission and discharge from observation to home on
the same date?
A: Bill a CPT “Observation or Inpatient Care Services (Including Admission and
Discharge Services)” code, 99234-99236. These codes are to be used for a
same-date admission and discharge in the observation status or inpatient
setting.

In addition to meeting the documentation requirements for history,
examination, and medical decision making documentation in the medical
record shall include:


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Documentation stating the stay for observation care or inpatient hospital care
involves 8 hours, but less than 24 hours;
Documentation identifying the billing physician was present and personally
performed the services; and
Documentation identifying the admission and discharge notes were written by the
billing physician.
http://www.cms.hhs.gov/Transmittals/Downloads/R1466CP.pdf
Q: Does Medicare require a minimum number of hours on observation status
before a physician can bill 99234-99236?
A: Yes. A patient must be in observation status at least eight hours for a physician to bill a
same-date admission and discharge code. Medicare rules differ from the instructions in
the CPT code book for this scenario and, thus, are more likely to differ from private-payer
billing rules. For Medicare:
• If observation care is ordered for the patient and then discharged home on the
same date of the observation stay that lasted at least eight hours (but fewer than 24
hours, since it must be on the same date), bill a code from the 99234-99236 range.
• If the patient is discharged home after fewer than eight hours in observation
status, bill only an initial observation care code, 99218-99220.
The Medicare eight-hour minimum rule for observation status pertains to same-date
admission and discharge only. If, as happens rarely, a Medicare beneficiary receives
observation care and is discharged in fewer than eight hours on a different date, bill an
initial observation care code, 99218-99220, for the first date of service and the
observation care discharge service code, 99217, on the second date.
Q: Can you provide some background on each of these different code families?
A: CPT code 99217, observation care discharge day management, is used for billing when
a patient is discharged from observation care on a date other than the date he or she
was placed in observation status.
CPT codes 99218-99220, initial observation care, describe physician visits during a
patient’s stay in observation status.
CPT codes 99234-99236, observation or inpatient care, are used when the patient is
placed in observation status or admitted to inpatient status and then discharged on
the same date.
All services provided on the day of discharge from inpatient status are coded 99238
or 99239. This applies for a discharge from inpatient status on a day other than the
day a patient was admitted. The full Medicare observation care services’ billing rules
are listed in the Medicare Claims Processing Manual, Chapter 12. The pertinent
information is in Section 30.6.8.
SO . . .
An Inpatient or Not?
More guidance is definitely needed on
admissions coding—particularly in regard to
chest pain, which causes the most
confusion. American Heart Association and
the American College of Cardiology have
developed base guidelines that should be
considered based on patient history, age,
duration and severity of signs and
symptoms.
An Inpatient or Not?


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So if the 85-year-old described earlier in the story wasn’t
currently having chest pain, most physicians would consider
ordering observation services.
However, if he had another bout of chest pain or his
biomarkers turned positive while in the hospital, they would
change his status to inpatient.
Physicians should use observation status as the default.
Medicare is more lenient on code changes from observation to
inpatient, rather than vice versa.
One thing is certain; that is in order to avoid problems,
hospitals and physicians need to have a consistent, welldocumented policy and process for making
Establish Protocol and
Decision Tools
In Summary


Remember new language for orders:
 Referred for Observation Services
 or Outpatient Observation Care
Remember that benchmark for Observation is 24
hours – document progress regularly.


Must treat all patients the same for all payers.
Work with your hospital administration to establish
UR Committee policy and procedure regarding
appropriate use of Observation services.