Observation - Physician Coding FAQ


FAQ 1. What are the three (3) sets of Observation codes and what are the criteria for their use for physician services?

A. Same Day Observation Admission and Discharge Codes: (99234-36)

(Note: for Medicare the patient must spend a minimum of 8 hours in observation status. See FAQ 8). 

    • 99234-Observation or inpatient hospital care for problems of low severity. Documentation requires a detailed or comprehensive history, a detailed or comprehensive exam, and straightforward or low complexity MDM. Typically, 40 minutes are spent at the bedside and on the patient's hospital floor or unit. 
    • 99235-Observation or inpatient hospital care for problems of moderate severity. Documentation requires a comprehensive history, a comprehensive exam, and moderate complexity MDM. Typically, 50 minutes are spent at the bedside and on the patient's hospital floor or unit. 
    • 99236-Observation or inpatient hospital care for problems of high severity. Documentation requires a comprehensive history, a comprehensive exam, and high complexity MDM. Typically, 55 minutes are spent at the bedside and on the patient's hospital floor or unit.

B. Initial Date Observation Codes: (99218-220)


Per CPT, these codes apply to all evaluation and management services that a practitioner provides on the same date of initiating "observation status". (Note: also use these codes for Medicare patients who spend < 8 hours in observation status) 

    • 99218-Initial observation care, per day, for problems of low severity. Documentation requires a detailed or comprehensive history, a detailed or comprehensive exam, and straightforward or low complexity MDM.  Typically 30 minutes are spent at the bedside and on the patient's hospital floor or unit. 
    • 99219-Initial observation care, per day, for problems of moderate severity. Documentation requires a comprehensive history, a comprehensive exam, and moderate complexity MDM. Typically, 50 minutes are spent at the bedside and on the patient's hospital floor or unit. 
    • 99220-Initial observation care, per day, for problems of high severity. Documentation requires a comprehensive history, a comprehensive exam, and high complexity MDM. Typically 70 minutes are spent at the bedside and on the patient's hospital floor or unit.

C. Subsequent Observation Care Codes (99224-226)


Per CPT, utilize the codes listed below for observation care services provided on dates other than the initial or discharge date. It is uncommon for observation care to require ≥ 3 days. These codes include reviewing the medical record and reviewing the results of diagnostic studies and changes in the patient's status since the last assessment by the physician.  

    • 99224-Subsequent observation care, per day, for stable, recovering, or improving patients. "Typically 15 minutes are spent at the bedside and on the patient's hospital floor or unit." Documentation requires substantiating at least 2 of 3: a problem focused interval history, problem focused examination, and low complexity MDM. 
    • 99225-Subsequent observation care, per day, for the patient responding inadequately to therapy or has developed a minor complication. "Typically 25 minutes are spent at the bedside and on the patient's hospital floor or unit." Documentation requires substantiating at least 2 of 3: expanded problem focused interval history, expanded problem focused examination, and moderate complexity MDM. 
    • 99226-Subsequent observation care, per day, in which the patient is unstable or has developed a significant complication or a significant new problem. "Typically 35 minutes are spent at the bedside and on the patient's hospital floor or unit." Documentation requires substantiating at least 2 of 3: detailed interval history, detailed examination, and high complexity MDM.


Note: CMS has stated: "In the majority of cases, the decision whether to discharge a patient from the hospital following resolution of the reason for the observation care or to admit the patient as an inpatient can be made in less than 48 hours, usually in less than 24 hours. In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours." But, of course, 48 hours can extend over 3 calendar days.




Observation Discharge Code (99217)

    • 99217-Observation care discharge includes services on the date of observation discharge (can only be used on a calendar day other than the initial day of observation). These services include a final exam, discussion of the observation stay, follow-up instructions, and documentation. Do not report 99217 if the patient was placed in observation and discharged on the same day.


FAQ 2. What are the total RVUs for each of the observation codes compared to ED codes?


2017 Total RVU’s

Emergency Department E/M Codes


Observation Admission/ Same Date Discharge Codes, including Medicare > 8 hrs. on same date


Initial Date Observation Status Codes (or Medicare < 8 hrs with Admission and Discharge Same Date)

Subsequent Date  Observation Status Codes

Discharge From Observation Status Separate-Last Date

CPT code



CPT code



CPT code


CPT code


CPT code
















































When a patient is admitted to observation on one day and discharged on the following day, the 99218-99220 code set would typically be assigned with the observation discharge code, 99217. The combined RVUs for these code pairs would be as follows: 4.88 for 99218 and 99217; 5.90 for 99219 and 99217; or 7.31 RVU for 99220 and 99217. The subsequent observation care codes (99224-99226) would be additional in the event an observation period spanned more than 2 calendar days.


FAQ 3. What are some of the diagnoses, or patient presentations that may benefit from an observation stay?

Most clinicians and payers agree that observation services should be used to potentially forestall a lengthy inpatient admission. Given that premise, there are two basic circumstances when observation is appropriate: 
1. Lack of diagnostic certainty, where a more precise diagnosis could decide inpatient admission or discharge to home, or 
2. Therapeutic intensity, where extensive therapy has a reasonable possibility of abating the patient's presenting condition, and thereby prevents inpatient admission.


An example of an observation case in the emergency department would be as follows:


A patient presents to the emergency department with nausea, vomiting and diarrhea for 24 hours’ duration. After a careful history and examination, preliminary impressions of gastroenteritis and dehydration are made. The patient has an IV started and antiemetic given. Over the next several hours the patient is hydrated intravenously. The patient is assessed every hour by the provider and the reassessments documented.  When tolerated, PO fluids are trialed. The patient continues to be observed until their symptoms are better and they have demonstrated the ability to hold down liquids. After discharge instructions are given the patient is discharged to follow up with their PCP in a few days or return to the emergency department if symptoms recur.

Other examples of patients who may qualify for Observation services in the ED include:

  1. Intoxicated head injury patient observed to r/o significant injury.
  2. Questionable overdose observed to r/o significant toxicity.
  3. Chest pain with repeat testing to rule out ischemia.
  4. Dehydrated patient observed to administer fluids and ability to retain oral liquids.
  5. Kidney stone observed to repeat x-rays and/or adequate pain control for possible admission.
  6. Asthmatic requiring repeat treatments and serial exams to determine response to treatment.
  7. Headache patients requiring repeat treatments and serial exams to determine if they  improve with treatment.
  8. Abdominal pain patients requiring serial exams to determine response to treatment.


Examples of cases where coding Observation services would generally not be indicated:

  1. Patient waiting on in-patient admission bed.
  2. Patient awaiting ride home.
  3. Lengthy procedures (laceration repair, reductions, etc…).
  4. Broken CT/MRI/Ultrasound/… equipment.
  5. Busy emergency department and delay in assessments due to volume or staffing.
  6. Waiting for consultant.  


FAQ 4. What documentation is required in order to assign the observation codes for physician services?

When documenting and coding for Observation services, it is important to understand there are differences between payers who follow CPT coding guidelines, and Medicare.


CPT documentation requirements are identified in FAQ #1. Observation services refer to the initiation of observation status, supervision of the care plan for observation and performance of periodic assessments.

The CMS Claims Processing Manual (Medicare) describes: "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."

For Medicare, same-day Observation services 99234-99236 require documentation of time in hours, with a minimum of eight hours documented. If duration of care is less than eight hours, then the 99218-99220 code set is appropriate. 99217 is not assigned when the patient is admitted and discharged from Observation during the same calendar date. If the patient is admitted and discharged on different days of services, Medicare does not require that the patient stay a minimum number of hours in order to bill for observation services. See FAQ #8.

(NOTE: To better appreciate the characteristics distinguishing facility coding from physician coding for Medicare Observation services, see ACEP's FAQs on OPPS/APCs and the Facility Observation FAQ).



FAQ 5. Can observation codes be used in the ED even if the patient is in a regular ED bed and not in a special bed or an observations unit?

Yes, observation is a "patient status" rather than a place. Observation services may take place in a regular bed in the ED, in a special observation area of the ED, a formal observation unit, or even in an inpatient bed.


FAQ 6. There are many different site-of-service/timing scenarios that might surround an observation stay. How would you code the following, assuming each patient started out in the ED and all care is provided by a single practitioner?


• Q1: Patient admitted to ED at 8 PM followed by an admit to observation at 2 AM (on the calendar date following the ED visit) and discharged home later that day. A: Assign the appropriate ED E/M code, 99281-99285, for day one and the appropriate observation care, code, 99234-99236, on day two. Do not assign 99217.
• Q2: The patient is admitted to the ED at 9 AM followed by an admit to observation at 1 PM and then discharged at 7 PM, all on the same calendar date. A: Assign the appropriate same day observation code (99234-99236) for combined ED/Observation services. Do not assign 99217. (Note that there is no 8 hour threshold for CPT observation services.) For a Medicare patient with 6 hours of Observation time, codes 99218-99220 would be used.
• Q3: What code should be reported on the middle day for a patient who continues to be in observation status for three calendar days? A: Use the subsequent observation codes for the middle day. Report CPT 99218-99220 for a patient designated as observation on Day 1, report CPT 99224-99226 on Day 2 and finally report CPT 99217 when the patient receives discharge services on Day 3.
• Q4: Can observation care codes 99217 and codes 99218-99220 be reported on the same date of service? A: No. CPT codes 99234-99236 should be reported for patients who are admitted to and discharged from observation status on the same calendar date. CPT code 99217 can only be reported for a patient discharged from observation status on a different calendar date.

FAQ 7. Can our medical group bill for ED services and observation services when two different physicians are involved? What if we used an Advanced Practitioner in observation instead of an ED physician?

For Medicare, if both physicians are of the same specialty, in the same group, generally either an ED service 99281-99285 or observation may be billed, but not both. If the visit crosses over midnight and involves two calendar days, then in some circumstances it might be proper to code both. (See FAQ #6, Q1.)  If a qualified health care professional works in the ED and is employed by the physician group then the answer is the same.

For CPT, strictly speaking, the "same physician = same specialty/group" concept does not apply. That being said, many payers have adopted this concept, so you are advised to check your local payer policy.


FAQ 8. While researching the "same day" observation codes 99234-99236, I found that Medicare requires a lengthy minimum stay in observationstatus. Is this true? And what about commercial payers?

CPT® describes typical times of 40 minutes for 99234, 50 minutes for 99235 and 55 minutes for observation code 99236. These times include bedside care, reviewing ancillary studies, documentation and other cognitive services related to the patient's observation care.
Same-day observation admit/discharge codes 99234-99236 for Medicare patients must include a minimum stay of at least 8 hours. For duration of less than 8 hours on the same date, the Initial observation code series 99218-99220 are used for Medicare patients. In this case, the discharge code 99217 is not used since the admission and discharge were on the same date of service.

Other payers may set their own respective payment policies. Of course, providers are required to follow the policies of only those payers with whom the provider must comply by reason of statute, regulation, or contract. In the absence of any contrary policy, CPT coding principles pertain. See Medicare Claims Processing Manual 12-21-11. Section 30.6.8 for details.


FAQ 9. What if I performed a procedure in the ED and then admitted the patient to observation? Can I assign the procedure code in addition to the appropriate observation code? Are there any procedures that are "bundled" into observation as in critical care? Are there any problems if the procedure had a "global period" by CMS definition?

The code for the procedure performed in the ED may be assigned in addition to the observation code. A -25 modifier may be appended to the Observation code when appropriate to indicate a distinct, separately identifiable service.

There are no procedure codes that CPT considers bundled into Observation. A global surgical fee usually includes payment for "observation" secondary to and immediately following the procedure. Under certain circumstances however, observation may be paid when a procedure with a global period is performed during the same encounter. An example is an ED visit after a fall resulting in a head injury and laceration. The observation stay for the head injury evaluation (with a -25 modifier as appropriate) and the laceration repair procedure (performed in the ED) could both be submitted.


FAQ 10. Is there a way to capture observation services that are much longer than usual?

Yes, with the addition of typical times to the observation code sets 99218-99220, 99234-99235 and 99224-99226, they now qualify for use with the prolonged service in the inpatient or observation setting add-on codes (99356 and 99357).

CPT offers specific guidance regarding the Observation Prolonged Service codes. Prolonged service refers to direct patient contact, is face-to-face and includes additional non-face-to-face services on the patient's floor or unit in the hospital or nursing facility during the same session, even if the time spent is not continuous. (NOTE: Eligible unit/floor time for prolonged services includes time the practitioner establishes and/or reviews the patient's chart, examines the patient, writes notes, and communicates with other professionals and the patient's family). It is reported in addition to the designated evaluation and management services at any level and any other services provided at the same session as evaluation and management services.

 inpatient or observation prolonged code descriptors read as follows:
+99356 Prolonged service in the inpatient or observation setting requiring unit/floor time beyond the usual service; first hour (Use 99356 in conjunction with 99218-99220, 99221-99233, 99224-99226, 99231-99233, 99234-99236, 99251-99255, 99304-99310, 90822, 90829).
+ 99357 each additional 30 minutes (List separately in addition to 99356). 


FAQ 11. What is the Two-Midnight Rule, and how does it affect Observation services?

On October 30, 2015, CMS (Medicare) released the final rule for OPPS updates to the "Two-Midnight" rule for physicians to use in determining patient admission status for inpatient or outpatient care under the Inpatient Prospective Payment System for hospitals. CMS stipulates that when a physician anticipates the patient will require care that crosses two midnights and orders inpatient admission based upon that expectation, inpatient status is generally appropriate. At this writing, time spent in Observation or other Outpatient status via an Emergency Department encounter may be retroactively combined with inpatient status to reach the two-midnight Inpatient threshold.







The American College of Emergency Physicians (ACEP) has developed the Reimbursement & Coding FAQs and Pearls for informational purposes only.   The FAQs and Pearls have been developed by sources knowledgeable in their fields, reviewed by a committee, and are intended to describe current coding practice. However, ACEP cannot guarantee that the information contained in the FAQs and Pearls is in every respect accurate, complete, or up to date. The FAQs and Pearls are provided "as is" without warranty of any kind, either express or implied, including but not limited to, the implied warranties of merchantability and fitness for a particular purpose. Payment policies can vary from payer to payer. ACEP, its committee members, authors or editors assume no responsibility for, and expressly disclaim liability for, damages of any kind arising out of or relating to any use, non-use, interpretation of, or reliance on information contained or not contained in the FAQs and Pearls. In no event shall ACEP be liable for direct, indirect, special, incidental, or consequential damages arising out of the use of such information or material. Specific coding or payment related issues should be directed to the payer. For information about this FAQ/ Pearl, or to provide feedback, please contact David A. McKenzie, CAE, Reimbursement Director, ACEP at (972) 550-0911, Ext. 3233 or dmckenzie@acep.org

Updated 04/25/2017


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