Health Information Management

Bill all hours of observation when appropriate

APCs Insider, April 4, 2008

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QUESTION: Do you have any information on short stay observations that last anywhere from eight hours to over 48 hours? We would like to know how Medicare pays for G0378 and G0379 and how or whether it pays for short stays over 48 hours. One issue we have is when a patient is in short stay observation for 30 hours and then becomes an inpatient. We've researched National Government Services (NGS) and CMS to make sure we are billing correctly. Can you provide us with any insight on this topic?

ANSWER: 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 Hospital Part B and OPPS), Section 290-Outpatient Observation Services

Section 290.1 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.

Since Medicare clearly states that observation over 48 hours should be rare and exceptional, we recommend that qualified personnel review all observation cases over 48 hours in order to verify the medical necessity of all hours to be billed. If the documentation clearly shows that a physician actively treated the patient, and that the physician is trying to make the determination whether to admit the patient as an inpatient or discharge him or her, then 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 hours over 48 are medically necessary. It is likely your FI or Medicare Administrative Contractor (MAC) will ask for the medical record and conduct a medical review. If the hours are justified 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.

Even though 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 Medicare Outpatient Prospective Payment System (OPPS) rate setting. When hospitals have legitimate observation stays over 48 hours, CMS will incorporate this information into the payment rate calculations. If hospitals arbitrarily cap billing at 48 hours because they do not want to "hassle" with the remarks and medical review, then future OPPS observation payment rates will never reflect hospital's actual resource utilization.

HCPCS codes G0378 and G0379 are separately payable in some circumstances. Report these codes when a separate payment or a packaged payment is made. The integrated outpatient code editor determines the applicability of separate payment based on the services reported on the claim. For 2008, CMS instituted a composite payment for observation services when a hospital meets certain criteria. This is a "lump sum" payment for the observation service rather than a line item payment for the individual codes. You can find more specific information in the online Medicare Claims Processing Manual, Chapter 4, Part B Hospital (Including Inpatient Hospitals Part B and OPPS), section 290.4.

Also, understand that the three-day payment window rule applies for observation stays of any length that are followed by inpatient admission, which means that the hospital may have to bill the services as part of the inpatient claim. Observation services are considered non-diagnostic services for purposes of the three day rule. You must combine and bill observation hours on the inpatient claim if the principal diagnosis for the observation services and the inpatient stay are an exact match, meaning that all digits of the ICD-9-CM code must match. For more information on the three day payment window rule see the Medicare Claims Processing Manual, Chapter 3 (Inpatient Hospital Billing), Section 40.3, Outpatient Services Treated as Inpatient Services.

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