Health Information Management

Understand coding nuances when reporting observation services

JustCoding News: Inpatient, September 16, 2009

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by Lois E. Mazza, CPC, PCA

Editor’s note: CMS recently clarified the definition of observation services. For more information, access a recent JustCoding article related to CMS’ clarification of what constitutes these services.

Physicians perform observation services when they monitor patients’ conditions. Observing patients helps physicians determine whether admission to the hospital is necessary or whether the patient can return home. A patient receiving observation services may require additional monitoring, diagnostic testing, and/or medication before he or she may go home. Either the patient’s condition will stabilize and result in his or her release, or a physician will admit the patient to the hospital as in inpatient.

Codes for observation services are included in the evaluation and management (E/M) chapter of the CPT Manual. Use observation codes to report E/M services that physicians provide to patients receiving observation services.

A patient does not need to be placed in a specially designated area in order to charge for observation services.

Observation care discharge services (code 99217) is the first option listed under the ‘Hospital Observation Services’ heading.

Code 99217: Observation care discharge day management (This code is to be utilized by the physician to report all services provided to a patient on discharge from “observation status” if the discharge is on other than the initial date of “observation status.”)

To report services to a patient designated as “observation status” or “inpatient status” and discharged on the same date, use the codes for Observation or Inpatient Care Services [including Admission and Discharge Services, 99234-99236, as appropriate.])

Code 99217 includes the following services:

  • Final examination of the patient
  • Discussion of the hospital stay
  • Discharge instructions
  • Preparation of discharge records

Initial observation care codes

Use these codes for new or established patients for whom physicians administer observation services. A provider may report initial observation care codes only when he or she is the one who establishes that the patient needs observation services. He or she must also be the one who is responsible for the patient during the observation period.

Other providers who see the patient while he or she is in observation should report codes from any of the following ranges:

  • 99201–99205: Office or other outpatient services for new patients
  • 99211–99215: Office or other outpatient services for established patients
  • 99241–99245: Consultations for new or established patients

When a physician admits an observation patient as an inpatient to the hospital on the same date that he or she initiated observation services, report initial hospital care codes (99221–99223) for services the physician renders on that date.

When a physician admits a patient to the hospital as a result of an encounter in another site of service (e.g., observation, physician’s office, emergency department, skilled nursing facility), all E/M services that the physician provides in conjunction with that admission are considered part of the initial hospital care when performed on the same date as the admission. The inpatient care level of service reported should reflect all inpatient and outpatient services provided.

Do not report initial observation care codes for postoperative recovery when the procedure is considered part of the surgical package. All E/M services rendered on the date the physician initiates observation services are included in all of the following codes discussed throughout the remainder of the article.

Code 99218: Initial observation care, per day, for the evaluation and management of a patient, which requires these three key components:

  • A detailed or comprehensive history
  • A detailed or comprehensive examination
  • Medical decision-making that is straightforward or of low complexity

Counseling and/or coordination of care with other providers or agencies are provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs.

Usually the problem(s) requiring admission to “observation status” are of low severity.

Code 99219: Initial observation care, per day, for the evaluation and management of a patient, which requires these three key components:

  • A comprehensive history
  • A comprehensive examination
  • Medical decision-making of moderate complexity

Counseling and/or coordination of care with other providers or agencies are provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs.

Usually the problem(s) requiring admission to “observation status” are of moderate severity.

Code 99220: Initial observation care, per day, for the evaluation and management of a patient, which requires these three key components:

  • A comprehensive history
  • A comprehensive examination
  • Medical decision-making of high complexity

Counseling and/or coordination of care with other providers or agencies are provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs.

Usually the problem(s) requiring admission to “observation status” are of high severity.

Observation or inpatient care services (including admission and discharge services)

Use the following codes to report observation services or inpatient hospital care services for patients who physicians admit and discharge on the same date of service.

When a physician admits an observation patient as an inpatient on the same date of service, only report the initial hospital care code. The initial hospital care code submitted should include all E/M services related to the admission for that date of service.

Code 99234: Observation or inpatient hospital care, for the evaluation and management of a patient including admission and discharge on the same date, which requires these three key components:

  • A detailed or comprehensive history
  • A detailed or comprehensive examination
  • Medical decision-making that is straightforward or of low complexity

Counseling and/or coordination of care with other providers or agencies are provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs.

Usually the problem(s) requiring admission are of low severity.

Code 99235: Observation or inpatient hospital care, for the evaluation and management of a patient including admission and discharge on the same date, which requires these three key components:

  • A comprehensive history
  • A comprehensive examination
  • Medical decision-making of moderate complexity

Counseling and/or coordination of care with other providers or agencies are provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs.

Usually the problem(s) requiring admission are of moderate severity.

Code 99236: Observation or inpatient hospital care, for the evaluation and management of a patient including admission and discharge on the same date, which requires these three key components:
• A comprehensive history
• A comprehensive examination
• Medical decision-making of high complexity

Counseling and/or coordination of care with other providers or agencies are provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs.

Usually the problem(s) requiring admission are of high severity.

Documentation should support all reported codes as well as the level of service to satisfy CMS requirements. Ensure that documentation includes the following pieces of information to help defend reported observation codes and levels:

  • Admitting orders dated and signed by the physician
  • Nurses’ notes
  • Physician’s progress notes
  • A record that is separate from the emergency department or outpatient office record

The record should clearly indicate that the physician ordered observation services rather than an inpatient admission.

Clinical examples

Following are some examples of scenarios that require observation codes:

Example one: A physician initiates observation services for Mr. Smith on day one and day two of his hospital stay. The physician admits Mr. Smith as an inpatient on day three, and visits him again as an inpatient on day four. The physician discharges Mr. Smith on day five.

Charge as follows:

  • Day one: Select an appropriate level from initial observation care codes (99218–99220).
  • Day two: Select an appropriate level from office or other outpatient service codes for an established patient (99212-99215).
  • Day three: Select an appropriate level from inpatient hospital care codes (99221–99223).
  • Day four: Select an appropriate level from subsequent hospital care codes (99231–99233).
  • Day five: Select an appropriate hospital discharge services code (99238 and 99239).

Example two: A physician initiates observation services for Mrs. Jones on day one of her hospital stay. On day two, Mrs. Jones remains under observation. The physician who ordered the observation services examines Mrs. Jones on day two, and then that same physician discharges Mrs. Jones on day three.

Charge as follows:

  • Day one: Select an appropriate level from initial observation care codes (99218-99220).
  • Day two: Select an appropriate level from office or other outpatient service codes for an established patient (99211-99215).
  • Day three: Select observation care discharge code 99217.

Example three: A physician initiates observation services for Mr. Exman. Later that same day, the physician determines that it is appropriate to admit Mr. Exman as an inpatient and does so immediately.

Charge as follows: 

  • Select an appropriate level from initial hospital care codes 99221–99223.

Example four: A physician orders observation services for Mrs. Excell. Later that same day, the physician releases her to go home.

Charge as follows:

  • Select an appropriate level from observation or inpatient care service codes 99234–99236.

Editor’s note: Lois E. Mazza, CPC, PCA, is a certified professional coder at Lahey Clinic Medical Center in Burlington, MA. E-mail her at Lois.E.Mazza@lahey.org.



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