Revenue Cycle

Changes to tracking observation hours and the CAH impact

Medicare Update for CAHs, July 13, 2011

A change to Medicare Claims Processing Manual chapter 4 on “Reporting Hours of Observation” —via the July outpatient prospective payment system (OPPS) update—will now allow providers to use average times for monitored procedures when determining the time to subtract from the total observation time, a problem that has hindered facilities in the past.

This is a significant update because the previous guidance required providers to subtract out time for procedures that require active monitoring and interrupt observation care. This was confusing because not only did providers struggle with determining which procedures required active monitoring, but also how much time to subtract for those procedures.

Now, CMS is revising the billing instructions to state that “in situations where such a procedure interrupts observation services, hospitals may determine the most appropriate way to account for this time. A hospital may record for each period of observation services the beginning and ending times during the outpatient encounter and add the length of time for the periods of observation services together to reach the total number of units reported on the claim for the hourly observation services HCPCS code G0378 (Hospital observation service, per hour),” according to transmittal R2234CP.

In addition, the hospital may deduct the average length of time of the interrupting procedure from the total duration of time that the patient receives observation services, which will be reflected in the CMS revision to chapter 4 of the Claims Processing Manual, according to the transmittal.

This change announced in the OPPS update demonstrates why CAHs must be aware of the transmittals and related guidance published for OPPS, IPPS (inpatient prospective payment systems) and the MPFS (Medicare physician fee schedule), as well as the proposed and final rules, says Debbie Mackaman RHIA, CHCO, regulatory specialist for HCPro, Inc.

“CAHs generally don’t have their own rulemaking process and oftentimes get lumped into other payment systems. This new [CMS] guidance makes it easier for all hospitals to bill for true observation services at their facilities, so if a facility chooses to go this route they should spend some time to identify common procedures performed concurrently with observation in their facilities,” she says.

She continues, “The procedure monitoring time should be averaged across a sample of observation patients and then a policy and procedure written so that this time is consistently deducted from those observation patients.”

If a CAH has sophisticated information and billing systems, this time can be “auto-deducted” based on the other CPT codes billed with G0378, which would remove the costly manual review of the process. However, all hospitals should intermittently self-audit against medical record documentation and the charges billed to ensure that the reduction in the total observation hours billed is indeed accurate, Mackaman suggests.

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