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Understand how payment for observation services will change in 2008

APCs Weekly Monitor, November 16, 2007

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QUESTION: Can you explain how payment for observation services will change as of January 1 as outlined in the 2008 OPPS final rule?

ANSWER: According to the OPPS final rule for calendar year (CY) 2008, CMS has made significant changes to the way in which it will pay for observations services. We suggest that hospitals carefully review the final rule regarding this change and how it will affect their facilities. Below is an overview of the observation changes.

For CY 2008, any scenario in which a patient admitted to observation-regardless of the diagnosis-may have the potential for payment. Medicare will pay for observation services under the following two new composite APCs related to observation:

• APC 8002 (Observation services generated either as a direct admission of a patient to the hospital for observation care or a patient who is admitted directly from a hospital-based clinic)
• APC 8002 will yield payment for observation services generated either as a direct admission of a patient to the hospital for observation care or a patient who is admitted directly from a hospital-based clinic. The national payment rate is $351.04.

With the elimination of the diagnosis requirement, CMS will now require providers to meet the following other criteria to qualify for an observation payment:

• Hospital observation services must be greater than eight hours and reported with code G0378.
• If the hospital provides any type of service that has a status indicator of "T" on the same date of the admission or one day earlier, Medicare will not pay the composite APC rate for the observation. CMS will pay separately for payable APC services, including the clinic visit and the diagnostic services.

CMS has stated that providers must report code G0379 (Direct admission of patient for hospital observation care not seen in a hospital-based clinic) or evaluation and management (E/M) visit code 99205 (new patient) or code 99215 (established patient) on the claim. Both of these E/M codes indicate that the patient was seen in a hospital-based clinic and then admitted for observation.

In order to qualify for APC 8003 (Observation services generated from the ED), providers must report E/M visit code 99284 (ED E/M), code 99285 (ED E/M) or code 99291 (critical care) on the claim. The national payment rate for this APC is $638.66.

• APC 8003 (Observation services generated from the ED)
• Hospital observation services must be greater than eight hours and reported with G0378.
• CMS also stated that if the hospital has provided any type of service that has a status indicator of "T" on the same date of the admission or 1 day earlier the composite APC rate for the observation will not be paid. CMS will pay separately for payable APC services including the clinic visit, diagnostic services, and so on.

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