Reporting Hospital Observation Services
By Emily Hill, PA-C

New Medicare guidelines have made coding for hospital observation services even more challenging.

Your patient, Mr. Jennings, presents to the emergency department at 5 p.m. with complaints of severe headache, paresthesias, visual changes and difficulty concentrating. He is on medication for mild hypertension and has no history of migraines or other neurologic disorders. You order a computed tomography scan and lab studies. The physical exam does not reveal any focal deficits.

The patient’s headache persists, and he has now developed nausea and vomiting. Other neurologic symptoms have resolved. You order I.V. medications for the pain and nausea, and decide to monitor Mr. Jennings to assure that his symptoms resolve and that all study results are negative. He is placed in the observation unit of the hospital. You reassess him on several occasions, and at 9 p.m. discharge him, with an appointment to see you in the office the following afternoon.

Your next challenge is how to code for the services you’ve provided Mr. Jennings. There is a category in Current Procedural Terminology (CPT) that describes observation services, including admission, discharge, and same-day admission and discharge services. Understanding how to appropriately use these codes can be challenging. In addition, Medicare has released new guidelines for their proper use.

Understanding the Codes
The codes for hospital observation services are used to report evaluation and management (E/M) services provided to patients placed under "observation status." Although many hospitals have designated areas for observation, it is not required to specify them to report these codes.

There are three main groups of codes to describe these services:

  • Initial observation care
  • Observation care discharge services
  • Observation care services with same-day admission and discharge

Only one observation care code should be reported per day. These codes are to be utilized only by the physician who initiated observation status. Other physicians providing services to the patient should report their care using outpatient E/M codes.

As with initial hospital care codes, all E/M services provided in conjunction with initiating observation status are considered part of the initial observation. In other words, the E/M services provided to Mr. Jennings in the emergency department are included in the initial observation care code and are not reported separately.

Coding Observation Services
Codes 99218–99220 refer to the initiation of observation status and include supervision of care plan and performance of periodic reassessments. It is important to recognize that all codes require the performance of detailed or comprehensive histories and physical exams. Brief admission notes that do not document that level of work would not support the reporting of observation care services.

Code 99217 should be used to report services provided to the patient on discharge from observation, if the discharge is on a date other than the initial date of "observation status." It includes the final exam, discussion of the stay, instructions and the preparation of discharge records. If Mr. Jennings had been discharged at 1 a.m. instead of 9 p.m., you would have reported one of the initial observation care codes for the first day of the encounter and the discharge code for the following date of service.

Because Mr. Jennings was admitted and discharged from observation status on the same date, one of the codes in the series 99234–99236 should be reported. These codes can be used if the patient was admitted and discharged from inpatient status on the same day. As with the other admission codes, all levels of service require documentation of detailed or comprehensive histories and physical exams.

Observation Time Period
CPT does not define a minimum or maximum time for a patient in observation status. However, some insurance companies may define the observation care period, and that may differ from your local hospital guidelines. In the November 1, 2000, Federal Register, Medicare outlined its guidelines for the use of observation codes, in particular those regarding same-day admission and discharge.

These guidelines state that for a physician to appropriately report codes 99234–99236, the patient must be in observation care for a minimum of eight hours. The physician must satisfy documentation requirements for both admission to and discharge from observation care and document the length of time the patient was in observation. Services to patients admitted to observation status for less than eight hours should be reported using the initial care codes only.

Reporting Observation Services
With CPT definitions, the services provided for Mr. Jennings would be reported using a code in the 99234–99236 group, as noted earlier. However, if he is a Medicare patient, only the initial observation codes are reported.

Let’s suppose that Mr. Jennings was admitted to the hospital rather than being discharged. In this case, only an initial hospital care code would be reported, since all E/M services provided in conjunction with the admission are included in the inpatient code. If the hospital admission had occurred on a different date, both the admission to observation and the admission to inpatient status could be reported. Both services would have to be documented in the medical record and meet the requirements for the history, exam and medical decision-making associated with the selected code.

Using Observation Care Codes
Based on clinical scenarios, there are a number of coding options for reporting services to patients placed in observation status. It is important to read the definitions and instructions in CPT and the guidelines released by Medicare to assure that services are properly reported and appropriate reimbursement is received.

Emily Hill, PA-C, is president of Hill & Associates, a national healthcare consulting firm specializing in coding and compliance for physician practices. Her e-mail address is

This article is derived from the McMahon Archives. This information may be time sensitive and was archived on 8/7/2001