Q&A: Covered Observation Services

Q. What factors indicate that an observation stay would be covered?

A. Although each payer may have a different definition of what is medically necessary for the patients that they cover, in general, in order for observation services to be covered, the treatment must be medically necessary and it has to be:

• An accepted treatment in the United States
• Proven effective in treating the patient’s condition
• A treatment that meets standards of practice established by the medical specialty involved
• Reasonable, necessary, and/or appropriate based on evidence-based clinical standards of care
• A primary condition/diagnosis and must be actively medically treated by interventions, procedures, medications, or other means
• Provided at the right level of care for the right amount of time and at the appropriate site, meaning there is no lower level where the patient can receive treatment safely and effectively

When assigning a patient to observation services, the physician first needs to ensure that the status assignment meets the payer’s criteria by answering the question: Are observation services reasonable and necessary to diagnose and treat the patient?

For more information, see Observation Services Training Handbook

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