Observation Care

Many conditions once treated during an “inpatient” hospital stay are currently treated during an “observation” stay (OBS). Although the care remains the same, physician billing is different and requires close attention to admission details for effective charge capture.

Let’s take a look at a typical OBS scenario. A 65-year-old female with longstanding diabetes presents to the ED at 10 p.m. with palpitations, lightheadedness, mild disorientation, and elevated blood sugar. The hospitalist admits the patient to observation, treats her for dehydration, and discharges her the next day. Before billing, the hospitalist should consider the following factors.

Physician of Record

The attending of record writes the orders to admit the patient to observation; indicates the reason for the stay; outlines the plan of care; and manages the patient during the stay. The attending reports the initial patient encounter with the most appropriate initial observation-care code, as reflected by the documentation:1

Downgraded Stays

In cases when a hospital utilization review committee determines that an inpatient admission does not meet the hospital’s inpatient criteria, Medicare allows the hospital to change the patient status from inpatient to outpatient and submit an outpatient claim for medically necessary services that were furnished, as long as the following requirements are met:5

  • The patient status change is made prior to patient discharge;
  • The hospital has not submitted a claim to Medicare for the inpatient admission;
  • A physician concurs with the utilization review committee’s decision; and
  • The physician’s concurrence with the utilization review committee’s decision is documented in the patient’s medical record.

The entire stay can then be treated as observation, and physicians should report the appropriate observation-care codes to reflect each service provided. Private payor guidelines are contractual and might vary, but they often follow Medicare guidelines. It is best to query non-Medicare payors for their specific change-of-status policies.

Since “downgrades” occur with some frequency, it is advisable to temporarily hold claims until the correct patient status can be confirmed by the utilization review team and communicated to the physician. This will save time having to resubmit or appeal incorrectly reported services.—CP

  • 99218: Initial observation care, requiring both a detailed or comprehensive history and exam, and straightforward/low-complexity medical decision-making. Usually, the problem(s) is of low severity.
  • 99219: Initial observation care, requiring both a comprehensive history and exam, and moderate-complexity medical decision-making. Usually, the problem(s) is of moderate severity.
  • 99220: Initial observation care, requiring both a comprehensive history and exam, and high-complexity medical decision-making. Usually, the problem(s) is of high severity.

While other physicians (e.g., specialists) might be involved in the patient’s care, only the attending physician reports codes 99218-99220. Specialists typically are called to an OBS case for their opinion or advice but do not function as the attending of record. Billing for the specialist (consultation) service depends upon the payor.


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