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What's appropriate for observation?
Here are some tips for determining the correct status
According to the Centers for Medicare & Medicaid Services (CMS), observation services are "a well-defined set of specific clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment."
The purpose of observation is to determine the need for further treatment or inpatient admission, according to the Medicare Benefit Policy Manual.
"Patients who are appropriate for observation have medical issues that need further evaluation but at the time, the physician does not have enough information to make a decision to admit the patient or discharge him from the hospital," says Deborah Hale, CCS, president and CEO of Administrative Consultant Services LLC, a health care consulting firm based in Shawnee, OK.
CMS states that the majority of patients who are admitted to observation present through the emergency department but need a significant period of assessment, reassessment and/or treatment, Hale points out
"Observation is not just for determining whether a patient should be admitted, but it's also for patients who have significant signs and symptoms that need treatment but should not take more than 24 hours," she adds.
During the observation time, if it is determined that the patient needs further treatment, he or she can always be converted to an inpatient admission, Hale says.
CMS says covered observation services can be completed in 24 hours or less in the majority of cases.
"CMS does not limit observation to 48 hours, but in order to be efficient and effective, hospitals need to have processes moving efficiently enough to have information needed to make a decision quickly," Hale explains.
Docs: Don't rely on observation
Hospitals shouldn't allow physicians to make observation a routine stop between the emergency department and an inpatient admission, Hale warns.
"If the emergency department physicians have trouble determining the level of care, they sometimes admit everybody to observation and let the attending sort it out. This is inappropriate and may result in financial penalties for the patient," she adds.
Observation is not appropriate for patients who are waiting for a nursing home, she points out. It's also not intended for patients who need certain outpatient services that the hospital doesn't provide, such as patients who missed their dialysis appointment and show up in the emergency department, Hale says.
"Hospitals are facing the problem of finding a placement for patients who come to the emergency department and don't require an acute level of care. They can't admit them, but they can't discharge them safely, either. It's a big challenge," she adds.
Services should not be billed as observation services if they are part of other services covered under Medicare Part B, such as outpatient surgical services, Hale says.
The Ambulatory Payment Classification (APC) payment for outpatient surgical procedures includes operating time, supplies, medication, anesthesia, antibiotics, and a routine recovery period of four to six hours but can be up to 24 hours, Hale points out. This means that time in the recovery room can't be billed as observation, she adds.
CMS will not pay for observation services when there are general standing orders for observation status after outpatient surgery, Hale says.
"Medicare is saying that there is a clear difference between inpatient and outpatient surgery and that observation status after outpatient surgical procedures is appropriate only when there are complications and the recovery time is not routine. Since complications cannot be predicted, hospitals should not have standing orders for observation," she says.
In addition, observation services should not be billed when they occur concurrently with diagnostic or therapeutic services that include active monitoring, she adds.
For instance, a patient comes in with an episode of gastrointestinal bleeding and is placed in observation. The physician orders a colonoscopy that is reimbursed by APC payment from Medicare. The time that the patient is in the colonoscopy lab cannot be counted in the observation time.
The same is true for a patient who is in observation with chest pain and receives a heart catheterization, Hale adds. The hours that the patient is in the catheterization lab cannot be counted as observation because those services are paid for by an APC payment.
Hale urges hospitals not to go too far in carving out minutes for extra services. For instance, if a nurse comes in to insert a catheter while the patient is in observation, it isn't necessary to carve out 15 minutes for that procedure.