Corporate Compliance

Billing for observation

Compliance Monitor, November 11, 2005

Q. A consulting company instructed our facility that we cannot bill observation charges to Medicare with revenue code 762 even when we don't expect additional payment. One example is when a patient requires prolonged stay after a procedure. We have been charging an observation bed charge under revenue code 762 with CPT 99218. We would like your opinion on this issue.

A. Based upon your specific scenario of observation services post-procedure, it is important to understand that routine observation services are not separately billable to Medicare. Refer to the Hospital Medicare Manual, Chapter 4, Section 290.1, which states that:

Observation services are those services furnished by a hospital on the hospital's premises, including the use of a bed and at least periodic monitoring by a hospital's nursing or other staff, which are reasonable and necessary to evaluate an outpatient's condition or determine the need for a possible admission to the hospital as an inpatient. Such services are covered only when provided by the order of a physician or another individual authorized by State licensure law and hospital bylaws to admit patients to the hospital or to order outpatient tests.

If a hospital intends to place or retain a beneficiary in observation for a noncovered service, it must give the beneficiary proper written advance notice of noncoverage under limitation on liability procedures (See Pub. 100-04, Medicare Claims Processing Manual; Chapter 30, "Financial Liability Protections," §20, for information regarding limitation on liability (LOL) under §1879 where Medicare claims are disallowed). "Noncovered," in this context, refers to such services as those listed in paragraph D, below.

Also refer to the Medicare Benefit Policy Manual, Chapter 6:

The following types of services are not covered as outpatient observation services:

 Services that are not reasonable or necessary for the diagnosis or treatment of the patient but are provided for the convenience of the patient, the patient's family, or a physician, (e.g., following an uncomplicated treatment or a procedure, physician busy when patient is physically ready for discharge, patient awaiting placement in a long term care facility).

 Services that are covered under Part A, such as a medically appropriate inpatient admission, or services that are part of another Part B service, such as postoperative monitoring during a standard recovery period, (e.g., 4-6 hours), which should be billed as recovery room services. Similarly, in the case of patients who undergo diagnostic testing in a hospital outpatient department, routine preparation services furnished prior to the testing and recovery afterwards are included in the payment for those diagnostic services. Observation should not be billed concurrently with therapeutic services such as chemotherapy.

 Standing orders for observation following outpatient surgery.

Claims for the preceding services are to be denied as not reasonable and necessary, under §1862(a)(1)(A) of the Act.

In conclusion, if a facility chooses to report revenue code 762 (observation services) following a procedure or service, it is imperative that you identify an appropriate order from the physician indicating observation services and the reason for such services. You may charge for the appropriate hours of observation, and as of 2005, HCPCS codes are not required. If your hospital chooses, you can report CPT codes 99217- 99220 and 99234 - 99236 (Section 290.2, Chapter 4, Hospital Medicare Manual).

Although these services are documented as reasonable and necessary following a procedure, they will be packaged under the OPPS. Please pay attention to the final 2006 APC guidelines, which change how you must code observation services.

However, if the patient requires extended, medically necessary recovery time -- even if that time is on a nursing unit -- you should report the time, but not under revenue code 762. Report revenue code 719, which is a more appropriate revenue code to capture these time-based charges. You do not need to report a HCPCS for this revenue code. This revenue code may be preferable to 710, which is often used to report charges in a post anesthesia care unit or a designated anesthesia recovery area.

Report revenue code 719 to capture medically necessary recovery time needed in a bed by an outpatient after surgery. In your scenario, it appears the consultants object to the reporting of the charges by labeling them "observation" using revenue code 762, not to the reporting of time-based charges for medically necessary recovery services.

As always, check with your FI for any specific local policies prior to submitting a claim.

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