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Provider Manual

Outpatient Observation Frequently Asked Questions

Last Updated on January 24, 2019

What is outpatient observation?

Observation is a special service or status that allows physicians to place a patient in an acute care setting within the hospital for a limited amount of time to determine the need for inpatient admission. The patient will receive periodic monitoring by the hospital’s nursing staff while in observation.

What is the difference in billing?
Observation stay is billed as an outpatient service (Part B under Medicare)

What kind of medical problems do patients have that would make observation appropriate?
There are many types of medical problems that would support the need for observation, for example symptoms that can usually be resolved within 24 to 48 hours or where the need for admission is unclear. It is the intent of the Medicare program to allow a physician more time to evaluate/treat a patient and make a decision to admit or discharge. Observation generally does not exceed 24 hours and only in extreme conditions exceeds 48 hours.

What are some examples of these problems?
Nausea, vomiting, stomach pain, headache, fever, and some types of shortness of breath and chest pain.

What is meant by a “limited amount of time?”
Observation is only appropriate for short time periods. Medicare currently allows 24 to 48 hours.

What happens at the end of the “specified amount of time?”
Typically the physician will decide whether to discharge the patient to home or admit him/her as an inpatient.

What if a physician decides the condition requires acute inpatient care?
When that determination is made, the physician must then write an order to convert the outpatient observation stay to an inpatient admission.

What if the patient is admitted as an inpatient but it is determined subsequent to the admission that the patient should have been in outpatient observation?
In some instances, a physician may order a beneficiary to be admitted to an inpatient bed, but upon reviewing the case later, the hospital’s utilization review committee determines that an inpatient level of care does not meet the hospital’s admission criteria.

Centers for Medicare and Medicaid Services (CMS) has a new condition code from the National Uniform Billing Committee (NUBC), since 2004:

  • Policy – In cases where a hospital utilization review committee determines that an inpatient admission does not meet the hospital’s inpatient criteria, the hospital may change the beneficiary’s status from inpatient to outpatient and submit an outpatient claim (TOBs 13x, 85x) for medically necessary Medicare Part B services that were furnished to the beneficiary, provided all of the following conditions are met:
  • The change in patient status from inpatient to outpatient is made prior to discharge or release, while the beneficiary is still a patient of the hospital;
    • The hospital has not submitted a claim to Medicare for the inpatient admission;
    • A physician concurs with the utilization review committee’s decision; and
    • The physician’s concurrence with the utilization review committee’s decision is documented in the patient’s medical record.
  • Condition Code 44 – Inpatient admission changed to outpatient – For use on outpatient claims only, when the physician ordered inpatient services but upon internal review performed before the claim was initially submitted, the hospital determines the service did not meet its inpatient criteria.

For additional information: CMS Manual Transmittal 299 – September 10, 2004.

After an observation admission, what if a physician decides that the patient does not require acute inpatient care?
The physician will discharge the patient and follow up with care on an outpatient basis.

Can a patient be placed into outpatient observation after undergoing an outpatient surgical procedure?
Procedures have a routine 4 to 6 hours of recovery associated with them. However, if the patient experiences a postoperative/post-procedure complication then the physician may place the patient into observation to monitor or admit as an inpatient.

What type of post-surgical conditions may warrant further evaluation in “outpatient observation?”

  • Inability to urinate
  • Inability to keep liquids down – thus requiring IV hydration
  • Inability to control pain
  • Unexpected surgical bleeding
  • Unstable vital signs
  • Inability to safely ambulate after spinal anesthesia
  • Unusual reaction to the surgical procedure or anesthesia (such as difficulty awakening from anesthesia, drug reaction, or other post-surgical complication)

Can a physician order observation services before the procedure is performed?
No. Routine preparation before a test or procedure is not considered to be an observation service. Observation services should only be ordered after the procedure and only after a routine recovery period has revealed a complication that would require additional time for monitoring and treatment.

If a physician places a patient in observation, how does this affect the patient’s copays?
Since observation is an outpatient services, any outpatient copays will apply. Medicare beneficiaries will be responsible for any “self-administrable” medications.