Evaluation and Management FAQs

Observation Services

Please define guidelines for providers billing observation services.

Answer: Observation services are ordered, performed and billed by the practitioner (or group), who is responsible for the patient’s care during the observation period. Services by other consulting providers during the observation period are billed using the outpatient office code set of 99202-99215. A qualified practitioner who does not have inpatient admitting privileges may order and furnish outpatient observation services, but only physicians with hospital admitting privileges may order inpatient hospitalization as the attending physician of record.

How are consultation services billed for patients who are receiving observation care?

Answer: Consultation services for patients who are receiving observation care are billed with outpatient codes 99202-99215, as per CMS Internet-Only Manual, Publication 100-04, Medicare Claims Processing Manual, Chapter 12, Section 30.6.8

For example, if an internist orders observation services and asks another physician to additionally evaluate the patient, only the internist may bill the initial and subsequent observation care codes. The other physician who evaluates the patient must bill the new or established office or other outpatient visit codes as appropriate.
What are the CMS-approved POS codes for observation services?

Answer: Observation services are billable in POS 19 (Off Campus-Outpatient Hospital), POS 22 (On Campus-Outpatient Hospital) and POS 23 (Emergency Room – Hospital). The correct POS for the claim is determined by the patient’s location in the facility at the time of the service.
When an initial observation service begins on one date and concludes on the next (e.g., 11:30 p.m.-12:45 a.m.) what is the correct way to bill the service?

Answer: When a service spans two dates, total time for that service is reported on a single date, and that is the date on which the service was initiated.
Do observation services require a written order by a physician or NPP?

Answer: Yes, in all circumstances, observation services require a written order by the physician or NPP who is requesting observation services.
If an ED physician issues an order for observation services, and then transfers care to a specialty provider, who is responsible for initial, subsequent and discharge services in the observation setting?

Answer: Observation services (initial, subsequent, discharge) are expected to be performed by the same provider or same-specialty members of the provider’s group. An exception to this rule exists when there is a written order for a transfer of care to another provider specialty. For example, an ED physician may order and perform initial observation and then transfer the patient’s care to a hospitalist or other specialty provider who then performs the subsequent observation care and either discharge or hospital admission.
If an ED physician initiates observation services, and then transfers care to a hospitalist, how would these services be appropriately billed?

Answer: If the ED physician performs the initial observation service, this would be billable using the 99221-99223 code set. In this scenario, this billing would encompass the physician’s prior ED care, which is not separately billable by the ED physician who performs and bills the admission service. If the ED physician performs only the ED care that would be represented with the code set 99282-99285.

If the hospitalist performs the initial observation or inpatient service, this would be billable using the 99221-99223 code set, as above, with subsequent care and discharge from either the observation or inpatient setting represented by the 99231-99233 and 99238-99239 code sets.
Please describe parameters for hospital inpatient or observation services when both admission and discharge occur on the same date of service.

Answer: CPT codes 99234-99236 apply to circumstances in which both admission and discharge to either observation or inpatient status occur on the same date of service. These codes require documentation of two or more encounters on the same date, one of which must be the initial admission encounter and one of which is a discharge encounter.

When a patient is both admitted and discharged during the same encounter, the appropriate code set selection is 99221-99223. Please see below for time parameters on these codes.
What are the time parameters for same-day admission and discharge codes?

Answer: CMS accepts “calendar date” as the same as “per day”. When the same-day service represents care over less than an 8-hour stay, these same day codes are not appropriate and the service should be billed using the 99221-99223 code set.
What is the correct billing when an observation or hospital admission service occurs over an 8-24 hour timeframe but spans two calendar dates?

Answer: In this situation, the provider should bill an initial service (99221-99223) to represent service on the first date and a discharge service (99238-99239) to represent service on the second date.
Are discharge codes 99238-99239 appropriate for same-day admission and discharge services?

Answer: No, these codes are not appropriate for same-day services. CPTs 99234-99236 include discharge care, which is not separately billable for a same-day service.
A patient is admitted to observation from the ED by a resident at 4:00 p.m. on 6/1/2023. On the morning of 6/2/2023, the patient is seen by the attending physician and then discharged later in the day on 6/2/2023. Please clarify correct billing for the attending physician’s service on 6/2/2023.

Answer: The service by the resident on 6/1/2023 is not billable to Medicare, since it was performed by the resident with no attending physician participation. In addition, a resident’s order for observation services is not valid, the order must be written by the physician who will be responsible for the patient’s care during the period of observation.

In 2023 CMS approved use of CPT Codes 99234-99236, which represent admission and discharge on the same date of service.

In the scenario above, the attending’s service on 6/2/2023 would be considered a same day admission and discharge and may be billed to Medicare as such, with CPT codes 99234-99236..
Please define correct coding for the following scenario: Dr. A and Dr. B are both members of a same-specialty hospitalist group. Dr. A places a patient in observation on 7/1 and Dr. B admits the patient to inpatient status on 7/2.

Answer: The initial care by Dr. A may be billed using the code set 99221-99223, and the subsequent care by Dr. B on 7/2 may be billed using the code set 99231-99233. Presuming that the hospitalist group will serve as the attending physician of record during the stay, the initial care represented by 99221-99223 should include Modifier AI, which identifies the physician (or group) who is serving as the attending physician of record during the observation and/or hospital stay.
Please define appropriate use of Modifier AI for observation and inpatient services.

Answer: Modifier AI is appended to initial observation and inpatient services (99221-99223) to identify a service performed by a provider (or group member) who is acting as the physician of record for the observation and/or hospital stay, and also applies to initial nursing home service codes.
What are the documentation requirements for observation services?

Answer: Documentation must reflect care relative to the condition for which the patient is being observed, as performed within the context of the physician’s orders and an acceptable, medically necessary standard of care. The notes written during the period of observation must support the medical necessity for ongoing care, provide the details of how that care is being rendered and, ultimately, provide a record of how a decision was reached to either discharge or admit the patient beyond the observation period.

Documentation requirements for both observation and inpatient services include a medically necessary history and/or examination, pertinent to the patient’s presenting clinical status and the provider’s medical judgement. Documentation of medical decision making is an expectation for all such services.
How is observation and inpatient time calculated?

Answer: Observation time is counted from the time of the initial observation order and care is initiated in that capacity, regardless of the patient’s location in the facility. This includes time spent in the ED awaiting a bed in either a defined observation unit or elsewhere in the facility.

Inpatient status begins with an order for inpatient care, and this order cannot be considered on a retroactive basis.

Reviewed 10/8/2024