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The Medicare Outpatient Observation Physician Guidelines identifies the following services that are not covered as outpatient observation:

• Services that are not reasonable or necessary for the diagnosis or treatment of the patient
• Services that are provided for the convenience of the patient, patient’s family, or a physician
• Services that are covered under Part A (e.g., medically appropriate inpatient admission)
• General standing orders for observation following outpatient surgery
• Patients undergoing diagnostic testing in a hospital outpatient department

Observation should not be billed concurrently with therapeutic services for which active monitoring is a part of the procedure such as chemotherapy or colonoscopy procedures. Furthermore, CMS states that outpatient observation is not indicated for the following situations (Meyerson, 2013):

• As a substitute for inpatient admission
• For continuous monitoring
• For medically stable patients needing diagnostic testing
• For patients needing therapeutic procedures such as blood transfusion, chemotherapy, or dialysis that is routinely provided in outpatient settings
• For patients waiting for long-term care facility placement
• For the convenience of the patient, his or her family, or the physician for routine preparation or recovery prior to or following diagnostic or surgical services
• A routine stop between the emergency department and an inpatient admission