Outpatient observation services defined:
“The use of a bed for physician periodic monitoring and active monitoring by the hospital's nursing or other ancillary staff, for the patient care which are reasonable and necessary to evaluate an outpatient's condition or determine the need for an inpatient admission. ” - Novitas, Local Coverage Determination (LCD) L27548
Observation services must be patient specific and not part of the facility’s standard operating procedures. For example, post-procedural recovery and monitoring would not be billable as observation. In certain instances, specific clinical situations may arise and additional outpatient services, or an inpatient admission, may be medically necessary. However, this would have to be outside the standard recovery and monitoring periods for the procedure rendered.
Observation services are not considered medically necessary when the patient’s current medical condition does not warrant observation, or when there is not an expectation of significant deterioration in the patient’s medical condition in the near future.
Observation services generally are not expected to exceed 48 hours in duration. Observation services greater than 48 hours in duration are seen as rare and exceptional cases. If medically necessary, Medicare will cover up to 72 hours of observation services. Observation services rendered beyond 72 hours is considered medically unlikely and will be denied as such. The appeals process must be followed to have observation services exceeding 72 hours to be considered for payment. A patient in observation status is either:
Admitted as an inpatient based on the patient’s condition or;
An outpatient and released when the physician determines observation is no longer medically necessary
A physician’s order is required when placing a patient in observation. Lack of documentation can lead to claim errors and payment retractions. A lack of documentation for an inpatient admission does not warrant retroactive observation billing. An order to admit the patient as an inpatient is also required when billing for an inpatient stay. Again, lack of documentation that clearly indicates the order for admission is grounds for a claim error and payment retraction. For example, and order simply documented as “admit” will be treated as an inpatient admission. A clearly worded order such as “inpatient admission” or “place patient in outpatient observation” will ensure appropriate patient care and prevent hospital billing errors. It is imperative that there is a continued focus on lowering the CERT rate and facility involvement is a key component to this goal.
Observation Service Billing Requirements
As discussed; observation services are outpatient services Therefore when the facility is billing for observation services, an outpatient claim will be submitted under a 13X or 85X Type of Bill (TOB). Observation is reported with revenue code 0762 and HCPCS code G0378.
Because observation may span multiple calendar dates you might be wondering how is this billed following line item billing guidelines? Observation is not split by calendar days per line item. Observation is billed on one line including the total accumulation of observation time with the date that observation care began.
Institutions are to follow typical billing requirements, reporting all appropriate and applicable ancillary revenue codes and HCPCS / CPT codes along with all applicable diagnosis codes associated with the outpatient service.
In conclusion, providers are reminded that observation services are provided on an outpatient basis and should be billed according to observation billing guidelines; which state that all hours of observation should be submitted on a single line with the date of service being the date the order for observation was written. Orders for observation services are not considered to be valid inpatient admission levels of care orders. When billing observation services, Novitas Solutions expects the charges associated with those services to be billed as outpatient level of care services. Providers are encouraged to participate in educational opportunities offered by Provider Outreach and Education (POE). Training and educational materials are focused on addressing topics that assist providers in understanding Medicare policies.