Back To Basics - Observation Care Coding

September 18th, 2012

One of the main jobs of a medical billing company is dealing with denials!


Sometimes, there are “trends” that call for further investigation; and sometimes we find out that our clients have some basic misunderstandings on how to bill for the services they render.  Sometimes we find that even we need a refresher on the rules!


Observation care is just such a set of codes.


Some fairly unknown basics:


  • Observation care is always an OUTPATIENT service.
  • Only one physician can bill for Observation care per day.  That should be the physician who is the “admitting” physician UNLESS he transfers care to a specialist.
  • Any other physicians involved in the care while a patient is in the observation unit should bill the appropriate OUTPATIENT service code…usually the same codes that you would bill for in office services.
  • A physician who does not have admitting privileges at a hospital; but who may see patients at the hospital in an outpatient capacity MAY bill for observation care.
  • Observation care is billed by calendar day NOT by twenty-four hour period.
  • If a patient is admitted to observation care for less than 8 hours on the same calendar date, the Initial observation care from CPT code range 99218 – 99220, should be reported.. The physician should NOT bill the Discharge Code even if the patient is discharged.
  • If a patient is in Observation care for at least 8 hours, but less than 24 hours, and is discharged on the same calendar date, Observation or Inpatient Care Services (Including Admission and Discharge Services) from CPT code range 99234 – 99236 shall be reported. CPT code 99217 for Observation Discharge cannot also be reported. This can be confusing.  These services are still OUTPATIENT despite the name of the code.
  • Per CMS “On the rare occasion when a patient remains in observation care for 3 days, the physician shall report an initial observation care code (99218-99220) for the first day of observation care, a subsequent observation care code (99224-99226) for the second day of observation care, and an observation care discharge CPT code 99217 for the observation care on the discharge date. When observation care continues beyond 3 days, the physician shall report a subsequent observation care code (99224-99226) for each day between the first day of observation care and the discharge date.”  Remember, if there are two doctors attending to the patient, only the physician primarily in charge of the care may bill for observation.  The other should use other outpatient service codes.
  • When a patient is admitted for observation care one calendar day and is discharged on a different calendar date, the physician shall report Initial observation care, from CPT code range 99218 – 99220, and CPT observation care discharge CPT code 99217.
  • If the same physician admitted the patient to observation care later admits the patient to inpatient on the same calendar day he has provided observation care, the physician should only bill for the initial hospital visit for the evaluation and management services provided on that date.  Be sure to incorporate the notes from observation by reference in your inpatient record.  Also, in appropriate cases, a physician may add prolonged attendance codes.  If so, be sure your time is documented.
  • In order to bill observation care codes, there must be a medical observation record for the patient which contains dated and timed physician’s orders and progress notes about the services the patient received and nursing notes. This record must be in addition to the records of ED or in-office visits.
  • Per CMS guidelines, “in only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours. 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.”


For more detail and examples on billing for observation services, visit the CMS Manual System at:

Tags: Observation Care


There are no comments yet.

Leave a comment

Do not fill in this email field. It is used to detect spam bots.
Do not fill in this comment field. It is used to detect spam bots.
Recent Blog Posts
Recent Tweets