Health Information Management

Recognize levels of observation codes and clear up common misconceptions

JustCoding News: Outpatient, January 13, 2010

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Editor’s note: This is the second part of a two-part series. Part two addresses different levels of observation codes. Part one discusses physician issues related to observation, including lacking physician orders and documentation.

To correctly code for patients in observation, it’s important to verify the registration status of the patient and assign the codes appropriate for that status.

When a physician decides to place a patient in observation, the physician has not formally admitted that patient to the hospital. The physician who orders observation services is the only one who may bill the hospital observation codes (99217–99220 and 99234–99236). All other physicians who see the patient in observation should use a code from one of the following code ranges to report evaluation and management (E/M) services they provide:

  • Outpatient/office visits (codes 99201–99215)
  • Outpatient consultations (codes 99241–99245), except for Medicare, who no longer accepts consultation codes as of January 1, 2010. (To learn more, access MedLearn Matters article MM6740.)

Understand different levels of observation codes

Observation codes do no not distinguish between new or established patients, and unlike subsequent hospital care services, observation care codes require all three key components (history, exam, and medical decision-making) to assign the appropriate level of care.

Note that observation code descriptions do not identify average times; therefore, time cannot drive the code even when the physician spends more than 50% of the visit counseling the patient or coordinating care. Access a related table that illustrates the key components required for the different levels of observation codes.

Without a comprehensive history and exam, the physician cannot report any code higher than level one. The only distinctions between level two and three services are the degree of medical decision-making and the severity of the presenting problem.

Most commonly, when physicians do not meet the comprehensive history requirement, it is because of a missing family history or complete review of systems, which involves 10 or more systems.

Address common problem areas related to observation

There are many misconceptions about physician coding for observation services, so physicians should note the following common problem areas:

  • Many physicians don’t understand that once they initiate observation services, they must perform a history and physical as well as a periodic assessment of the patient’s condition and a discharge summary.
  • Many providers neglect to report inpatient hospital care (codes 99221–99223) when physicians admit patients to inpatient status from observation on a subsequent day.
  • Many providers incorrectly report inpatient hospital care (codes 99221–99223) or inpatient consultation (codes 99251–99255) for patients in the ED or in observation who physicians discharge without admitting to inpatient status. For consultations for patients in observation, coders should report outpatient codes:
    • Outpatient consultation codes (99241–99245) for non-Medicare patients
    • Office or other outpatient codes (99201–99215), new or established, for Medicare patients

CMS also clarified in the new 2010 consultation guidance that when the ED physician requests a consultation, the consulting physician should report the ED visit codes (99281–99285).

  • Some providers assign the incorrect observation code category when physicians place patients in observation and then discharge them on same day. Note the following guidelines:
    • When the length of stay is less than eight hours, providers should report codes 99218–99220 for Medicare.
    • When the length of stay is eight hours or longer, providers should report codes 99234–99236 for Medicare. However, CPT does not mention the minimum time requirement, and states that providers may use these codes as long as the admission and discharge occur on the same date of service.

Examples illustrate guidance from CPT and Medicare

Check with your carrier to confirm their reporting policies for the following examples:

Example 1
A patient presents to the ED with chest pain, and the cardiologist places the patient in observation at 8 p.m. on day one, and the patient is transferred to the hospital’s chest pain center, where the cardiologist performs the initial observation. The next day (i.e., day two), the cardiologist decides to keep the patient in observation until the following day (i.e., day three), when the patient is discharged.

For this example, according to Medicare guidelines, you should report the following codes:
Day one: 99218–99220
Day two: 99212–99215
Day three: 99217

Medicare guidelines state that for patients in observation for more than two calendar days, the physician should bill a visit furnished before the discharge date using the office or other outpatient services codes (99211–99215). The physician may not use subsequent hospital care codes (99231–99233) because the patient is not an inpatient.

Although there are currently no instructions in the CPT® 2010 Professional Edition for how to code hospital observation services provided on more than two dates, CPT Assistant, September 2006, stated that for these services, providers should report unlisted E/M service code 99499 and include a written report that describes the services provided.

Example 2
A patient presents to the ED with chest pain, and the ED physician calls the cardiologist, who orders observation services for the patient at 8 p.m. The patient is then transferred to the hospital’s chest pain center. The cardiologist comes in the next day and performs an initial observation service then discharges the patient later that day.

How should the cardiologist code for his or her services?

Per CPT Assistant, June 2002, CPT code 99217 (Observation discharge) is the only code the cardiologist may bill for this scenario. However, some Medicare carriers have different guidelines. Noridian Administrative Services (NAS) has noted that there is confusion regarding appropriate coding when a physician orders initial observation care for a patient but doesn’t examine the patient until the day after initiating observation services.

In 2006, a post on the NAS Web site recommended that providers report one of the following:

  • CPT codes 99234–99236 (Observation or inpatient care services including admission and discharge services) when the physician sees the patient on at least two separate occasions on day 2 and these separate occasions are at least eight hours apart
  • CPT codes 99217–99220 (Hospital observation services) when the physician sees the patient on only a single occasion or when the physician sees the patient on separate occasions that are less than eight hours apart

Note that for both code ranges cited above, the physician documentation would need to demonstrate that there was ongoing observation and care.

In that same post on its Web site, NAS also recommended the following alternatives:

  • The physician could bill the appropriate level office or other outpatient services code (99201–99215).
  • If the ED physician admits the patient to observation in the evening (day one) and bills an initial observation care code (99218–99220) for this service, the attending physician may not bill for these same codes on the following day (day two). However, in this situation the attending physician may bill using codes 99201–99215 or code 99217 on day two.

Example 3
A patient presents to the ED with chest pain, and the ED physician calls the cardiologist, who orders observation services for the patient at 8 a.m. The patient’s condition worsens, and the cardiologist decides to admit the patient as an inpatient at 8 p.m.

For patients who receive outpatient observation services and are admitted to the hospital as inpatients on the same date, the physician should report only the initial hospital care codes (99221–99223). The Medicare payment for the initial hospital visit includes all services provided to the patient on the date of admission by that physician, regardless of the site of service.

Example 4
A patient presents to the ED with chest pain, and the ED physician calls the cardiologist, who orders observation services for the patient at 4 p.m. The cardiologist performs the initial observation service at 9 p.m. The patient’s condition worsens, and the cardiologist decides to admit the patient (as an inpatient) the next day at 8 a.m.

When a physician admits a patient to inpatient status from observation subsequent to the date when he or she ordered observation services, the physician should report both:

  • Codes 99218–99220 for initial observation care on the first day
  • Codes 99221–99223 for initial hospital care on the subsequent date

The physician may not bill the hospital observation discharge management code 99217 nor an outpatient/office visit for the care provided in observation on the date of admission to inpatient status.

Remember that the initial hospital care code (admission) also requires that the physician document the history and exam again. If the physician performs a high-level initial observation service on day one (i.e., code 99220), it requires a comprehensive history and comprehensive exam. If on the day of admission, the physician performs less than a comprehensive history and exam, he or she should report the observation visit that reflects the services furnished (i.e., 99220) and also report the lowest level initial hospital care code (i.e., code 99221) for the initial hospital admission. It would not make sense for the the physician to document another comprehensive history on day two because most of the patient’s history would not have changed in this short time frame.

Do not confuse the history and exam documentation requirements for the E/M visits with Medicare’s conditions of participation requirement, which states that the physician may conduct the history and physical any time within the 30 days prior to admission to 24 hours after admission.

Editor’s note: Elin Baklid-Kunz, MBA, CPC, CCS, is the director of physician services for Halifax Health in Daytona Beach, FL. E-mail her at

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