According to the Medicare Outpatient Observation Physician Guidelines (ACEP, 2015), observation is an active treatment to determine if a patient’s condition is going to require hospitalization or if the patient may be discharged home due to problem resolution. CMS has updated the outpatient prospective payment system (OPPS) such that general orders for observation services following outpatient surgery are not recognized. This refers to the services that are part of another Part B service, such as postoperative monitoring during the standard recovery period (4-6 hours) that are billed with PACU services. Observation services should not be billed for diagnostic or therapeutic services that are included as part of the procedure (such as a colonoscopy). CMS identifies that the end time for observation is when all medically necessary services related to the observation are completed. If a patient is waiting for transportation home, this time is not part of the observation time-even though the patient is still under a nurse’s care.
Medicare and private insurers establish stricter criteria for hospital admissions each year. Patients may be placed in observation status and Medicare may not cover their expenses longer than 24 hours. A hospital cannot bill Medicare, as the facility risks being charged with fraud when it bills for an inpatient stay that is not covered or for an observation stay that is greater than 24 hours. Patients are then charged the difference. It is important that the patient be alerted to the fact that expenses may be incurred in the event that he or she is placed in an observation category. Private insurer pay varies, but most permit only 23 hours in observation. (Illinois Hospital Association, 2016). Observation facility payment includes five categories of items or services (ACEP, 2015):
In August 2013, CMS (Medicare) originally established a two-midnight benchmark for physicians to use in determining patient admission status for inpatient or outpatient care under the Inpatient Prospective Payment System for hospitals. CMS stipulates that when a physician anticipates the patient will require care that crosses two midnights and orders inpatient admission based upon that expectation, in-patient status is generally appropriate. Time spent in observation or other outpatient status via an emergency department encounter is not combined with inpatient status to reach the two-midnight inpatient threshold (ACEP, 2015) and is not payable by Medicare Part A. Observation care does not count toward Medicare’s “three consecutive hospital stay” rule to qualify for skilled nursing facility placement. If patient status changes from observation to inpatient, the three-day stay begins from the time the patient is designated as an inpatient and does not include the day of discharge (CMS, 2015).