Corporate Compliance

Observation status in a critical access hospital setting

Compliance Monitor, October 14, 2005

Q: We are a critical access hospital. If we have a patient in observation that is not discharged, but transferred out to another facility for a procedure and then transferred back to out facility as an observation patient, who bills for the procedure?

A: In general, the billing for the procedure should be done by the facility providing the services. However, the likelihood is fairly low that a patient is actually in observation status AND required an urgent and emergent procedure that required him or her to be transferred to another facility and then back to your facility.

I would refer you to the Medicare Benefit Policy Manual.

In Chapter 1, p 4-5, inpatient care is defined quite specifically. In addition, in the chapter on Medicare Part B, observation is defined.

Under Medicare's definition, it is hard to imagine that the patient described is truly requiring observation services both pre and post procedure. More likely, this is a patient who could be classified as an inpatient, and your facility reimbursement would be addressed under the rules surrounding transfer DRGs.

This question was answered by Joseph Zebrowitz, MD, executive vice president, Executive Health Resources. He can be reached at

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