According to the Medicare Benefits Policy Manual, Chapter 6, section 20.6 (Rev. 215, Issued, 12-18-15, Effective, 01-01-16, Implementation: 01-04-16)

Observation care is a well-defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation services are commonly ordered for patients who present to the emergency department and who then require a significant period of treatment or monitoring in order to make a decision concerning their admission or discharge.
Observation services are covered only when provided by the order of a physician or another individual authorized by state licensure law and hospital staff bylaws to admit patients to the hospital or to order outpatient tests. 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. In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours.
Hospitals may bill for patients who are directly referred to the hospital for outpatient observation services. A direct referral occurs when a physician in the community refers a patient to the hospital for outpatient observation, bypassing the clinic or emergency department (ED) visit. Effective for services furnished on or after January 1, 2003, hospitals may bill for patients directly referred for observation services.

The Medicare Claims Processing Manual Chapter 4 (Part B Hospital) also contains guidance for observation status beginning on page 224.

See page 15 of this 17-page document for more clarity on observation status. For implementation July 5, 2011. Click here.

This is transmittal 1466 from CMS Manual System. It contains detailed information on Hospital Observation Services. This document is 10 pages. Click to view or download.

This MLN Matters Article discussed the topic of Hospital Observation Status (Codes 99217 – 99220) and Observation or Inpatient Care Services (Codes 99234 – 99236). Click here to view or download.

Related MLN Matters
Article #: MM5791
Date Posted: February 25, 2008
Related CR #: 5791


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