Observation Care Payments to Hospitals FAQ

The following FAQ content reflects 2013 Outpatient Prospective Payment System (OPPS) observation coding information. No substantive changes were made to policies for hospital observation in 2013.  Medicare is considering a number of comments relating to future structure of payment for hospital observation services.  CMS reimburses hospitals for observation using "composite" APCs when the service is provided in conjunction with an appropriate Type A or B ED visit, critical care, clinic visit, or a direct referral to observation.  These composite APCs further CMS efforts to increase the packaging of related services under the OPPS.  Under OPPS, observation is defined as "Extended Assessment and Management Composite" services.

 
FAQ 1:  How did the OPPS rules for Observation change in 2013?

No changes were made in the 2013 final rule with comment period.  CMS will continue to pay for observation using the composite APCs, 8002 and 8003.  The level 5 Type B ED service will still qualify for observation payment if all other criteria are met.  Composite APC 8003 describes an encounter for care provided to a patient that includes a high level (Level 4 or 5) Type A emergency department visit, a high level (Level 5) Type B emergency department visit, or critical care services in conjunction with observation services of substantial duration.  HCPCS code G0378 (Observation services, per hour) is assigned status indicator "N," signifying that its payment is always packaged.

There was a change in the physician supervision rule for observation in 2011 that carried over to 2013.  In the final OPPS rule CMS added a new classification of services called "nonsurgical extended duration therapeutic services."  These services include 16 observation, injection and infusion services.  CMS selected these specific 16 services because they can last a significant period of time, require substantial monitoring, are low risk, and are not surgical.  Because of these characteristics, CMS believed that a relaxed level of supervision would be safe and appropriate after the patient was deemed stable.  Direct supervision, which has the prior standard for observation care, is required during the initiation of observation and then General Supervision is allowed once the patient is deemed stable.  The point of transition to general supervision must be documented in the medical record.  CMS further stated that the provider could be an MD or NPP if the service was within the scope of licensure, credentialing and bylaws.

 FAQ 2:  What are the two APCs Medicare uses to reimburse hospitals for observation care?

APC 8002-Level I Extended Assessment and Management Composite

This APC requires a level 99205 or 99215 clinic visit on the day of or the day before observation or a direct admission to observation.  In addition, at least 8 units of G0378 (Observation services, per hour) must be reported and no procedure with a status indicator of T (significant procedure subject to multiple procedure discounting).

APC 8003-Level II Extended Assessment and Management Composite

This APC requires a level 99284 or 99285 Type A ED visit, a G0384 level 5 Type B ED visit, or 99291 critical care to be reported on the day of or day before observation.  In addition, at least 8 units of G0378 (Observation services, per hour) must be reported and no procedure with a status indicator of T (significant procedure subject to multiple procedure discounting).

These composite APCs are reimbursed as a single payment for the combination of an ED or clinic visit, or a direct referral to observation with an observation visit instead of a separate payment for the observation and the ED or clinic visit.  For 2013, the APC 8002 payment is $440.07 and the APC 8003 payment is $798.47.

FAQ 3:  What are the criteria that hospitals must meet in order to receive Medicare payment for observation care?

Because Observation services are by definition outpatient services, placement into observation ought to have been specifically ordered at a time when it was uncertain if an inpatient admission would be necessary (Chapter 1, Section 50.3.2 of the Medicare Claims Processing Manual (Pub. 100-04); FAQ 2723, available on the CMS website at https://questions.cms.gov/faq.php?id=5005&faqId=2723.)  Providers will report the ED or clinic visit CPT code or, if applicable, G0379 (direct referral to observation) and G0378 (hospital Observation Services, per hour) and the number of units representing the hours spent in observation (rounded to the nearest hour) for all Medicare observation services. The Medicare Outpatient Code Editor (OCE) will determine if the service qualifies for reimbursement under a composite APC. Specific criteria include:

  • There must be a physician order to place the patient in observation.
  • For Medicare payment, a HCPCS 99284, 99285, or G0384 ED visit code, critical care, or a 99205 or 99215 clinic visit is required to be billed on the day before or the day that the patient is placed in observation. If the patient is a direct referral to observation the G0379 may be reported in lieu of an ED or clinic code. In addition, the E/M code associated with these other services must be billed on the same claim form as the observation service and the E/M must be billed with a modifier -25 if it has the same date of service as the observation code G0378.
  • The observation stay must span a minimum 8 hours and these hours must be documented in the "units" field on the claim form.  For facilities, the "clock" starts at the time that observation services are initiated in accordance with a practitioner's order for placement of the patient into observation status.
  • The patient must be under the care of a physician or non-physician practitioner during the time of observation care, and this care must be documented in the medical record with an order for observation, admission notes, progress notes, and discharge instructions (notes) all of which are timed, written, and signed by the physician.  In the 2011 final OPPS rule, CMS clarified that a non-physician practitioner that is licensed by the state and approved by internal credentialing and bylaws to supervise patients in observation may do so.  No changes were made to that clarification in 2013.
  • The medical record must include documentation that the physician used "risk stratification" criteria to determine that the patient would benefit from observation care. (These criteria may be either published generally accepted medical standards or established hospital-specific standards.)
  • All related services provided to the patient should be coded in addition to the observation code G0378.
FAQ 4:  How do CPT and Medicare payment policies for observation care differ between physician and hospital payments?

For physician payment for observation care under CPT, there are no procedural restrictions, or specific preceding visit level requirements similar to Medicare's policies for facilities. Physician observation services are billed in lieu of Emergency Department or other Evaluation/Management CPT codes, except for certain exemptions (e.g., Critical Care).

Medicare has an 8 hour minimum for physicians reporting the observation same-day-discharge codes 99234-99236. This 8 hour minimum does not apply to an observation stay that spans 2 calendar days (99217-99220).  CPT lists typical observation times a practitioner could spend at the bedside and on the patient's hospital floor or unit as follows:

•99218 - Initial observation care per day, 30 minutes bedside/floor/unit time

•99219 - Initial observation care per day, 50 minutes bedside/floor/unit time

•99220 - Initial observation care per day, 70 minutes bedside/floor/unit time

•99234 - Observation or inpatient hospital care, 40 minutes bedside/floor/unit time

•99235 - Observation or inpatient hospital care, 50 minutes bedside/floor/unit time

•99236 - Observation or inpatient hospital care, 55 minutes bedside/floor/unit time

•99224 - Subsequent observation care, 15 minutes bedside/floor/unit time

•99225 - Subsequent observation care, 25 minutes bedside/floor/unit time

•99226 - Subsequent observation care, 35 minutes bedside/floor/unit time

As with all CPT typical times, the respective listed guideline times are averages representing a range of times.  And therefore actual times may be higher or lower depending upon extant clinical circumstances.

Medicare pays hospitals (via OPPS) for observation care when the conditions in FAQ2 are met and specific criteria are documented in the medical record: an order for placement into observation, a risk stratification; and an admit note, progress notes and a discharge note that are timed and signed by the physician.

 
FAQ 5:  Are there specific ICD-9 (Diagnosis) codes that must be present on the hospital's UB claim form to achieve facility Medicare reimbursement for observation care?

No.  The qualifying ICD-9-CM diagnosis code requirement for chest pain, CHF and asthma was discontinued effective for any observation service provided on or after January 1, 2008.

 

FAQ 6:  Are there any diagnostic services that must be provided (and reported on the same claim form as the observation service) during the period of observation care, in order for the facility to be paid by Medicare?

No, the OPPS rules for observation payment changed in 2005 and the reporting of specific diagnostic tests is no longer required.

 

FAQ 7:  Does Medicare have any specific time requirements in order for hospitals to be paid for observation care?

Yes. Observation care must be provided hourly for a minimum of 8 hours. In billing for observation service, the units of service represent the countable number of observation hours that the patient spends in observation. This countable observation time is exclusive of any time the patient was out of the observation area without an RN and exclusive of any time that a separately billable procedure was performed that required active monitoring.  Medicare will not pay separately for any hours a beneficiary spends in observation over 24 hours, but all costs beyond 24 hours will be included in the composite APC payment for observation services. Observation services with less than 8 hours of observation are not eligible for Medicare reimbursement. If a period of observation spans more than one calendar day, all of the hours for the entire period of observation must be included on a single line and the date of service for that line is the date the patient is admitted to observation.

 
FAQ 8:  When does observation care time begin and end for facility coding?

Per CMS, observation time starts 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."  Observation ends at the time when all medically necessary services related to observation care are completed - including follow-up after dc orders are written.  This observation end time is the time when all clinical or medical interventions have been completed, including the nursing follow-up care performed after the physician's observation discharge orders were written. This does not include the time a patient might spend waiting for transportation.

 
FAQ 9:  What if the patient bypasses the clinic or ED and is a direct referral to the observation area?

For CY 2013, CMS will again pay for a direct referral to observation using code G0379 (APC 0604) CMS expects that hospitals will bill this service in addition to G0378 when a patient is referred directly to observation care after being seen by a physician in the community. Hospitals should not bill HCPCS code G0379 (APC 0604) for a direct referral to observation care on the same day as a hospital clinic visit, emergency room visit, critical care, or after a "T" status procedure that is related to the subsequent admission to observation care. If observation criteria are met the composite APC 8002 will be paid. If not, the G0379 will be paid under APC 604 at a low level clinic rate of $56.77.

 
FAQ 10:  Can the facility report intravenous infusions and injections during a separately payable observation stay? How does the facility report intravenous infusions performed during observation?

Yes, facilities may report intravenous infusions and injections in addition to observation service for all payers including Medicare. If an infusion is started in the ED or clinic visit preceding observation subsequent or concurrent hours of infusion may be coded in observation but the initial service codes would not be coded a second time, unless a second IV infusion site was initiated.  CMS directs facility providers to follow CPT rules for coding injections and infusions.

 
FAQ 11:  Are additional procedures payable to a facility when reported in addition to observation?

Separate payment is allowed for services with status indicators S (significant procedure not subject to discounting) and X (ancillary service) when billed with G0378. The payment policy is the same for many non-Medicare payers. Payment is not allowed if a surgical procedure or any service that has a status indicator of "T" occurs on the day before or the day that the patient is placed in observation. However, all services related to the observation services should be coded. The OCE logic will determine payment. The following table illustrates coding and billing information for each observation category:

Observation Type Reported in addition to ED, Clinic, Critical Care Reported with observation code G0378 (Medicare)? HCPCS Code for reporting the observation service 2013 APC and Payment
Observation for a minimum 8 hours YES YES G0378  Payable under composite APC 8002, $440.07, and APC 8003, $798.47
Observation services for less than 8 hours after an ED or clinic visit YES YES G0378  The separate ED or clinic visit alone would be paid. Any other separately billable service such as infusions will also be paid
Initial nursing assessment of patient directly referred to observation, minimum 8 hours

NO

Report all related T and V status services

YES Both G0378 and G0379  G0379 is not separately payable but is packaged into the composite APC 8002 payment, $440.07
Initial nursing assessment of patient directly referred to observation and does not otherwise meet criteria for observation

NO

Report all related T and V status services

YES Both G0378 and G0379  Not eligible for composite observation APC payment; will be reimbursed under APC 0604 low level clinic visit. $56.77
IV infusion billed with observation service YES, if service provided YES, if service provided CPT infusion codes Mapped to corresponding APC and paid separately
 
FAQ 12:  How does the facility report observation services for patients who are not Medicare?

Non-Medicare payers have different policies so providers should check with these payers to determine their specific payment policies. Some payers require the reporting of only a revenue code and a charge; others may require CPT Observation codes, some allow the reporting of Medicare's G0378 HCPCS code.

Additional Reading:

Medicare Claims Processing Manual (Pub. 100-4; Chapter 4; Sections 290.2.2 - 290.5; Transmittal 1745; Change Request 6492, May 22, 2009 implemented July 6, 2009

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