Tip of the week: Observation cases requiring more than 48 hours are rare; verify medical necessity and expect review

Observation billing is addressed in the online Medicare Claims Processing Manual at Medicare Claims Processing (Pub. 100-04), Chapter 4, Part B Hospital (including Inpatient Hospitals Part B and OPPS), section 290.

Section 290.1 (Outpatient Observation Services) states the following:

Observation services must also be reasonable and necessary to be covered by Medicare. 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, usually in less than 24 hours.

Because Medicare states that observation of more than 48 hours in duration should be rare and exceptional, we recommend that qualified personnel review all observation cases that exceed 48 hours to verify the medical necessity of all hours you bill. If documentation shows that a physician actively treated the patient, and that the physician tried to make the determination whether to admit the patient as an inpatient or discharge him or her, you should bill these hours.

The claim will suspend in the Medicare fiscal intermediary (FI) standard system and the biller should add a remark that the hours exceeding 48 are medically necessary. Your FI or Medicare Administrative Contractor probably will request the medical record and conduct a medical review. If you can justify the hours with appropriate documentation, the case will pay the same as a case with less than 48 hours of observation unless the case qualifies for outlier payment.

Although there is no additional payment when you bill more than 48 observation hours, it is still important to bill all appropriate hours of observation because all paid claims with observation hours are included in the claims used to calculate the median cost of observation for the Medicare OPPS rate setting.

If hospitals have legitimate observation stays exceeding 48 hours, CMS can incorporate this information into the payment rate calculations. If hospitals arbitrarily cap billing at 48 hours because they do not want to handle the remarks and medical review, then future OPPS observation payment rates will not reflect their resource utilization.