Guidelines for Observation ServicesBy: Sheila Haynes, CPC

Observation care is a well-defined set of specific, clinically appropriate services, which include:

  • Ongoing short-term treatment,
  • Assessment,
  • Reassessment

These are furnished while a decision is being made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation services are commonly ordered for patients who present to the emergency department and who then require a significant period of treatment or monitoring in order to make a decision concerning their admission or discharge.

In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours.

There are often questions to arise regarding “who” may bill for the Observation Service CPT codes (99218-99220, 99224-99226)

Who May Bill?

  • Contractors pay for initial observation care billed by only the physician/non physician practitioner who have hospital admitting privileges, who ordered hospital outpatient observation services, and who was responsible for the patient during his/her observation care. A physician who does not have inpatient admitting privileges but who is authorized to furnish hospital outpatient observation services may bill these codes.
  • For a physician to bill observation care codes, there must be a medical observation record for the patient which contains dated and timed physician’s orders regarding the observation services the patient is to receive, nursing notes, and progress notes prepared by the physician while the patient received observation services. This record must be in addition to any record prepared as a result of an emergency department or outpatient clinic encounter.
  • Payment for an initial observation care code is for all the care rendered by the ordering physician on the date the patient’s observation services began. All other physicians who furnish consultations or additional evaluations or services while the patient is receiving hospital outpatient observation services must bill the appropriate outpatient service codes.
  • For example, if an internist orders observation services and asks another physician to additionally evaluate the patient, only the internist may bill the initial and subsequent observation care codes. The other physician who evaluates the patient must bill the new or established office or other outpatient visit codes as appropriate.

Initial Observation Care (CPT codes 99218-99220)

  • Included in Initial Observation Care:
    • Initiation of observation status
    • Supervision of the care plan for observation
    • Performance of periodic reassessments
  • When a patient receives observation care for less than 8 hours on the same calendar date, the Initial Observation Care, from CPT code range 99218 – 99220, shall be reported by the physician. • When a patient is admitted for observation care and then is discharged on a different calendar date, the physician shall report Initial Observation Care, from CPT code range 99218 – 99220, and CPT observation care discharge CPT code 99217.
  • To report services provided to patient who is admitted to the hospital after receiving hospital observation care services on the same date, see initial hospital care notes in the American Medical Association (AMA) Current Procedural Terminology (CPT) Publication.
  • To report hospital admission on a date subsequent to the date of observation status, use appropriate initial hospital care codes (CPT 99221 – 99223)
  • Observation status that is initiated in the course of an encounter in another site of service (eg. hospital emergency department, office, nursing facility) all E/M services provided by the supervising physician or other qualified health care professional in conjunction with initiating “observation status” are considered part of the initial observation care when performed on the same date.
    • The level of service reported should include the services related to initiating “observation status” provided in the other sites of service as well as in the observation setting • On the rare occasion when a patient remains in observation care for 3 days, the physician shall report an initial observation care code (99218-99220) for the first day of observation care, a subsequent observation care code (99224-99226) for the second day of observation care, and an observation care discharge CPT code 99217 for the observation care on the discharge date. • Admitted and discharges from observation or inpatient status on the same date report CPT codes 99234-99236 as appropriate; do NOT report observation discharge in conjunction with a hospital admission.
  • These codes may NOT be utilized for post-operative recovery if the procedure is considered part of the surgical “package.”

Subsequent Observation Care (CPT codes 99224-99226)

  • All levels of subsequent observation care include:
    • Reviewing the medical record
    • Reviewing the results of diagnostic studies
    • Changes in the patient’s status (ie, changes in history physical condition, and response to management) since the last assessment.
  • When observation care continues beyond three days, report subsequent observation care for each day between the first day of observation care and the discharge date.
  • When a patient receives observation care for a minimum of 8 hours, but less than 24 hours, and is discharged on the same calendar date, observation or inpatient care services (including admission and discharge services) CPT code range.

Discharge Observation Care (CPT 99217)

  • Included in CPT code 99217
    • Final Examination of the patient
    • Discussion of the hospital stay
    • Instructions for continuing care
    • Preparation of discharge records
  • For observation or inpatient hospital care including the admission and discharge of the patient on the same date see CPT codes 99234 – 99236.