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CMS clarifies outpatient observation services

JustCoding News: Outpatient, September 23, 2009

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Editor’s note: To learn more about codes for observation services, access a recent JustCoding article.

Healthcare facilities should review CMS’ new language that clarifies outpatient observation services. CMS replaced the terms ‘observation status’ with ‘observation services’ to clarify its existing policy.

“CMS made it very clear they consider [patient observation] a service,” says Kimberly Anderwood Hoy, Esq., CPC, director of Medicare and compliance at HCPro, Inc., in Marblehead, MA. “It’s like any other outpatient service. Just like an x-ray or other outpatient services, it needs an order, it’s provided, and it’s billed.”

The change was part of CMS’ July quarterly update of the hospital Outpatient Prospective Payment System (OPPS). CMS revised its Medicare Benefit Policy Manual (Transmittal 107) and Claims Processing Manual (Transmittal 1760, formerly Transmittal 1745), updating them by removing references to ‘admission’ and ‘observation status’ as they relate to outpatient observation services and direct referrals for observation services. In both transmittals, CMS said the terms may have been confusing to hospitals, as the term ‘admission’ typically describes an inpatient admission and inpatient hospital services.

“It doesn’t necessarily change CMS’ prior guidance,” says Hoy, who adds that it’s merely a definition change. The change became effective July 1, with implementation July 6. Hoy says facilities should review the changes, which CMS highlighted with red font in the transmittals.

“It’s really a clarification, not necessarily a change ... but make sure folks look at it,” says Dave Fee, MBA, product marketing manager of outpatient products at 3M Health Information Systems in Murray, UT.

What CMS changed

CMS did not change its definition of observation services. Observation care is a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment before medical staff members can decide whether a patient needs additional treatment as an inpatient or can be discharged from the hospital, CMS said.

CMS did change what it has always termed ‘direct admission for observation’ to ‘direct referral for observation,’ says Hoy. The agency wanted to eliminate any idea of admission in its reference to observation. “They want to make clear they consider observation a service, not an admission,” Hoy says.

When people think about admission of a patient, they tend to think about inpatient services rather than outpatient services, Fee says.

Thus, CMS changed the language in its manuals. It will also be interesting to see whether CMS changes the HCPCS code description itself, which still includes ‘direct admission for observation,’ Hoy says.

Where the confusion lies

However, at least one change seems more confusing than enlightening, Hoy says. Under the physician evaluation section, CMS changed the requirement for ‘admission, discharge, and other appropriate progress notes’ to ‘outpatient registration, discharge, and other appropriate progress notes.’

“It’s very odd language,” Hoy says, since outpatient registration is a function of the registration department and is not something a physician would do. “I don’t know what they had in mind, but I assume they were referring to an initial note of some kind but weren’t sure how to phrase it.” It is likely CMS is still referring to a requirement for an initial assessment by the physician, she adds.

How to count time

One benefit to facilities is CMS’ clarification of how organizations can count the time for observation care. CMS makes it clear that observation services begin when the facility initiates care in accordance with a physician’s order, without regard to the setting, such as whether the patient is in the ED or in a medical-surgical bed.

“This clearly says it doesn’t matter,” says Hoy. “Whenever you start care according to a physician’s order, you start counting the time. Time in the emergency department is counted, which was not clear before.”

Editor’s note: This story originally appeared in the August issue of Briefings on APCs.

E-mail Fee at dnfee@mmm.com.



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