The Centers for Medicare and Medicaid Services (CMS) defines outpatient observation services as a well-defined set of specifically 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 (Bassett, 2013; Dias, 2016).
A person receiving observation services may improve and be released or admitted as an inpatient. Observation level of care includes the use of appropriate monitoring, diagnostic testing, therapy, and assessment of patient symptoms, signs, laboratory tests, and response to therapy for the purpose of determining whether a patient will require further treatments. According to the Medicare Outpatient Observation Physician Guidelines (American College of Emergency Physicians [ACEP], 2015), observation is an outpatient diagnostic treatment category and is a billing status and not a place. Observation allows the physician time to make a decision and then rapidly move the patient to the most appropriate setting. Observation is not a holding zone. When the ACEP recognized the need for observation units, they described the keys to a successful observation unit as having clearly defined admission criteria, well-planned policies and procedures, a clear chain of command, proper staffing, adequate location, appropriate equipment, and a carefully developed quality assurance and utilization program (ACEP, 2015; Brillman et al., 1994). Patients must be under the care of a physician or nonphysician practitioner during the time of observation care. This care must be documented in the medical record with an order for observation, admission notes, progress notes, and discharge instructions (notes) all of which are timed, written, and signed by the physician.