Observation Hours Policies
by Janet L. Blondo, LCSW-C, MSW, CMAC, ACM, CCM, C-ASWCM, ACSW
Billing for Observation
Billing correctly for observation hours is a challenge for many organizations. Getting it right requires knowing how to calculate observation hours for each patient, which is far from straightforward.
According to the Centers for Medicare & Medicaid Services (CMS), observation hours start accruing not when the patient comes into the hospital, but when the physician writes the order for observation. Observation hours end when all medically necessary services related to observation are complete.
In some cases, this means that you can still bill for time spent completing the patient’s care after the physician writes the discharge order.
For example, a physician comes in to see the patient at 7:30 a.m. and writes the discharge order, which states discharge will occur pending the completion of tasks X, Y, and Z. The nursing staff finishes up those three tasks and the patient is finally ready to leave the hospital at 11 a.m. The hours between 7:30 a.m. and 11 a.m. are potentially billable observation hours because they were used to complete the patient’s medical care.
Observation hours therefore end not with the discharge order but with the completion of medical services.
In addition, because observation services are considered a temporary period to aid in decision-making, CMS states in the Medicare Benefit Policy Manual that only in rare and exceptional cases should observation services last more than 48 hours.
If a case reaches the 48-hour mark and the physician still hasn’t made a decision to discharge or admit the patient for inpatient care due to instability or risk of an adverse event if discharged, nor has any documentation made a compelling case for the need to continue observation, the services no longer meet the definition of observation care and the hospital should not bill for future hours. Hospitals should also not report observation hours after the physician has decided to send the patient home or to a lower level of care if the patient is receiving no active treatment and is just in a holding pattern until he or she moves to the next level of care or goes home.
Coding for Comprehensive Observation Services
The 2016 outpatient prospective payment system final rule implemented changes for coding and billing for observation services. Among the changes made by CMS was the creation of a new Comprehensive Ambulatory Payment Classification for comprehensive observation services (CMS, CMS Finalizes Hospital Outpatient and Ambulatory Surgical Center Policy and Payment Changes, 2015).
To read the complete, detailed artcile that appeared on Medicare Compliance Watch, click here.
To purchase Observation Services Training Handbook, click here.