Hospital Medicine

Billing basics - observation status - admit, subsequent care and discharge

I. Problem/Challenge.

Hospitalists must bill the appropriate charge for each documented service based on the 1995 or 1997 Documentation Guidelines for Evaluation & Management Services. Observation status is considered an “outpatient” service and is used for patients who are expected to be in the hospital less than 24 hours. However patients who remain for up to 48 hours may be billed in observation status. Based on placement in observation status and documentation criterion from the evaluation and management guidelines, physicians can select the appropriate Current Procedural Terminology (CPT) code to bill for these services.

II. Identify the Goal Behavior

Hospitalists must document admission, subsequent care and discharge notes in order to record pertinent facts, findings and observations about an individual’s health history, communicate to other health care providers seeing the patient, accurately record the time course of events, and review tests and data. In the evaluation of documentation for billing purposes, three key components are reviewed: history (chief complaint (CC), history of present illness (HPI), review of systems (ROS), past medical, family and social health history (PMFSH)), exam (as either body areas/organ systems or bulleted items) and decision-making (diagnosis/treatment, review of data, risk of complications).

Initial observation care (CPT 99218-99220)

The initial admit charge includes elements from each of the three key components: history, physical exam and decision-making. Time can be used to select the level of service when more than 50% of the required time is spent on patient counseling or coordinating care.

An “-AI” modifier is added to the evaluation & management (E&M) code of the principal/admitting physician to differentiate the physician overseeing care from a consultant since they now use the same codes.

Subsequent observation care (CPT 99224-99226)

Subsequent care charges include elements from at least two of the three key components: history, physical exam and decision-making. Time can be used to select the level of service when more than 50% of the required time is spent on patient counseling or coordinating care.

Observation discharge (CPT 99217)

There is no time differential for discharge from observation status as there is for inpatient admissions.

Same date admit/discharge (CPT 99234 – 99236)

Patients admitted and discharged on the same calendar date should be charged with a same date admit/discharge code. Their hospital stay must be at least 8 hours to capture this charge and include documentation of an initial and final encounter. They must be in “observation” or “outpatient” status.

III. Describe a Step-by-Step approach/method to this problem.

Initial observation care (CPT 99218-99220) plus an “-AI” modifier.

Requirements for each level of service are the same as the requirements for a full inpatient service. However, the patient’s location is designated as “outpatient” in the medical record.

For example, documentation requirements for an initial admit level 1 (99221) are the same as those for an observation admit level 1 (99218).

  • Level 1 admit (99221) = Level 1 observation (99218)

  • Level 2 admit (99222) = Level 2 observation (99219)

  • Level 3 admit (99223) = Level 3 observation (99220)

(See “Billing basics – admits, subsequent care and discharge”.)

Subsequent observation care (CPT 99224-99226)

Requirements for each level are the same as the requirements for a full inpatient service. However, the patient’s location is designated as “outpatient” in the medical record.

For example, documentation requirements for a subsequent care level 1 (99231) are the same as those for an observation subsequent care level 1 (99224).

  • Level 1 subsequent care (99231) = Level 1 subsequent observation care (99224)

  • Level 2 subsequent care (99232) = Level 2 subsequent observation care (99225)

  • Level 3 subsequent care (99233) = Level 3 subsequent observation care (99226)

(See “Billing basics – admits, subsequent care and discharge”.)

Observation discharge (CPT 99217)

There is no time differential for discharge from observation status as there is for inpatient admissions.

Same date admit/discharge (CPT 99234 – 99236)

Requirements for each level are the same as the requirements for a full inpatient service admission plus a follow-up note related to discharge. The patient’s location is designated as “outpatient” in the medical record.

For example, documentation requirements for an initial admit level 1 (99221) are the same as those for a same date admit/discharge level 1 (99234).

  • Level 1 admit (99221) = Same date admit/discharge Level 1 (99234)

  • Level 2 admit (99222) = Same date admit/discharge Level 2 (99235)

  • Level 3 admit (99223) = Same date admit/discharge Level 3 (99236)

(See “Billing basics – admits, subsequent care and discharge”.)

IV. Common Pitfalls.

Remember, patients in “observation status” are expected to be in the hospital a maximum of 48 hours.

Patients in “observation status” are considered “outpatient”. Patients admitted and discharged on the same date must be “admitted” for at least 8 hours to bill for this encounter.

V. National Standards, Core Indicators and Quality Measures.

1995 and 1997 Documentation Guidelines for Evaluation & Management Services

VI. What’s the evidence?

"Department of Health and Human Services, Centers for Medicare and Medicaid Services: Evaluation and Management Services Guide".

"Department of Health and Human Services, Centers for Medicare and Medicaid Services: Evaluation and Management Services".

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