Knowledge Base Article

Q:

Since payment for observation services has changed from a composite payment to a comprehensive APC payment (see MMP article Observation Payment for 2016), have the requirements for reporting observation hours changed?

A:

No. The reporting of observation services remains the same as described in the Medicare Claims Processing Manual, Chapter 4, section 290.2.2. Some of the key information from this manual is:

• Observation services are only covered when provided by the order of a physician or other individual authorized to admit patients or to order outpatient services.
• Observation services are generally reported with revenue code 762.
• Other ancillary services performed while the patient is receiving observation care are separately reported.
• Observation time is reported per hour, rounded up to the nearest hour.
• Observation time begins at the clock time documented when observation care is initiated in accordance with a physician’s order.
• Observation time ends when all medically necessary services related to observation care are completed.
• Although 8 or more hours of observation care are required for an observation payment, all hours of observation should be reported.
• Observation services should not be billed concurrently with diagnostic or therapeutic services for which active monitoring is a part of the procedure. This means providers may have to “carve out” procedure time from the total stay to calculate observation hours.
• Standing orders for observation services following outpatient surgery are not appropriate.
• When observation services span more than one day, all observation hours are reported as a single line item for the date observation care began.