Knowledge Base Article

“Observation care services are covered only when provided by the order of a physician or another individual authorized by state licensure law and hospital staff bylaws to admit patients to the hospital or to order outpatient tests. These services must be deemed reasonable and necessary to be covered by Medicare. Please share with appropriate staff.”

• Source: Palmetto GBA JJ April 10, 2018 Daily Newsletter

Palmetto GBA, the Jurisdiction J (JJ) Medicare Administrative Contractor (MAC) included the above statement in their April 10, 2018 Daily Newsletter. The reminder also included a link to an article about Observation Care on the Palmetto GBA website.

Given that Palmetto GBA started the conversation, MMP would also like to make appropriate staff aware of the fact that there is a new JJ Outpatient Observation Bed/Room Services (L34552) Local Coverage Determination (LCD). This article will walk you through LCD L34552.

LCD Coverage Indications, Limitations and/or Medical Necessity

Observation Services: What it is?

• “Observation services are defined as the use of a bed and periodic monitoring by a hospital's nursing or other ancillary staff, which are reasonable and necessary to evaluate an outpatient's condition to determine the need for possible inpatient admission.”

• “The services may be considered covered only when provided under a physician's order (or under the order of another person who is authorized by state statute and the hospital's bylaws to admit patients or order outpatient testing).”

• “Outpatient observation services must be patient specific and not part of the facilities standard operating procedure or protocol for a given diagnosis or service. Observation services, generally, do not exceed 24 hours.”

Observation Services: What it is not?

• “Outpatient observation services are not to be used as a substitute for medically necessary inpatient admissions. Outpatient observation services are not to be used for the convenience of the hospital, its physicians, patients, or patient's families, or while awaiting placement to another health care facility.”

Documentation Palmetto expects to find in the Medical Record

LCD L34552 includes the following five elements that need to be included in the medical record when a patient is receiving Observation Services:

1. “The attending physician's order including “clock time” for the observation service or “clock time” can be noted in the nursing admission notes/observation unit notes outlining the patient’s condition and treatment.

2. Observation time which begins at the clock time documented in the patient’s medical record, and which coincides with the time the patient is placed in a bed for the purpose of initiating observation care in accordance with a physician’s order.

3. The ending time for observation occurs either when the patient is discharged from the hospital or is admitted as an inpatient. The time when a patient is “discharged” from observation status is the clock time when all clinical or medical interventions have been completed, including any necessary follow-up care furnished by hospital staff and physicians that may take place after a physician has ordered that the patient be released or admitted as an inpatient. However, observation care does not include time spent by the patient in the hospital subsequent to the conclusion of therapeutic, clinical, or medical interventions, such as time spent waiting for transportation to go home.

4. The beneficiary is under the care of a physician during the period of observation as documented in the medical record by admission, discharge, and appropriate progress notes.

5. Risk stratification criteria (such as intensity of service and severity of illness) were used in considering potential benefits of observation care.”

Observation Services Triggering Medical Review

Tucked between the Coverage Indications, Limitations and/or Medical Necessity and the Categories of Observation Services is to me one of the most important sentences in this LCD: 

“Observation claims exceeding 48 hours may be subject to medical review.”

So why 48 hours, in the related Observation Care article mentioned previously? Palmetto notes that CMS has indicated that “In the majority of cases, the decision whether to discharge a patient from the hospital following resolution of the reason for the observation care or to admit the patient as an inpatient can be made in less than 48 hours, usually in less than 24 hours. In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours.”

Additionally, with the implementation of the 2-Midnight Rule effective October 1, 2013, outpatient observation services spanning greater than 48 hours should be closely followed to convert to Inpatient when appropriate or work with the Physician to determine why he/she believes the patient is continuing to require observation care.

Outpatient Observation Services Categorized

The LCD indicates that outpatient observation services fall into one of three categories.

1. Diagnostic Testing

Under this category, for scheduled invasive outpatient diagnostic tests, routine preparation and immediate recovery after the test is not considered to be an observation service. If further monitoring is required as a result of a significant adverse reaction from the test then outpatient observation services may be reasonable and necessary.

“Observation services begin at that point in time when the reaction occurred and would end when it is determined whether or not the patient required inpatient admission. Medical review decisions will be based on the documentation in the patient’s medical record.”

2. Outpatient Therapeutic Services

“Observation status does not apply when a beneficiary is treated as an outpatient for the administration of blood only and receives no other medical treatment. The use of the hospital facilities is inherent in the administration of the blood and is included in the payment for administration.

When the patient has been scheduled for ongoing therapeutic services as a result of a known medical condition, a period of time is often required to evaluate the response to that service. This period of evaluation is an appropriate component of the therapeutic service and is not considered an observation service.

The observation service begins at that point in time when a significant adverse reaction occurred that is above and beyond the usual and expected response to the service.”

3. Patient Evaluation
   “When a patient arrives at the facility with an unstable medical condition (generally via the Emergency Department), observation services may be reasonable and necessary to evaluate the medical condition to determine the need for a possible admission to the hospital as an inpatient.
   
   An unstable medical condition can be defined as:
   · variance from generally accepted normal laboratory values; and
   · clinical signs and symptoms present that are above or below those of normal range (for the patient) and are such that further monitoring and evaluation is needed. Changes in the patient's status or condition are anticipated and immediate medical intervention may be required.
   
   Documentation in the patient's medical record must support the medical necessity of the observation service.

Inpatient Status Changed to Observation Status is a No Go without Condition Code 44

While this LCD does not mention Condition Code 44, it does include the following statement:
“Upon internal review performed before the claim was initially submitted and upon the hospital determining that the services did not meet its inpatient criteria, an inpatient status may not be automatically changed to observation status. An observation stay must adhere to the criteria as described in the “Coverage Indications, Limitations and/or Medical Necessity” section of this LCD.”

Documentation Requirements

When reading an LCD I often jump to the end where you find the “Documentation Requirements” detailing what the MAC expects to find when reviewing a record for medical necessity of the services provided. Specific to this LCD, “documentation must be legible, relevant and sufficient to justify the services billed. The documentation for Outpatient Observation must include:

1. The attending physician's order including “clock time” for the observation service or “clock time” can be noted in the nursing admission notes/observation unit notes outlining the patient’s condition and treatment.
2. The physician's admission/progress note which clearly indicates the patient's condition, signs and symptoms that necessitate the observation stay.
3. Supporting ancillary reports such as laboratory and diagnostic test reports.

Legible documentation in the medical record must clearly support the medical necessity and reasonableness of the observation services. The documentation should clearly state the method of assessment during observation and, if necessary, treatment in order to determine if the patient should be admitted or may be safely discharged.”

Key Takeaways for Providers

The three major points Providers need to be mindful of when internally reviewing outpatient claims where the beneficiary was receiving observation services are: 

• To support medical necessity of an outpatient stay receiving observation services, the medical record should include the following elements:

1. A timed order for observation services,
2. Physician documentation indicating a patient’s condition, signs and symptoms necessitating observation services.
3. All ancillary reports supporting the patient evaluation (i.e. labs and diagnostic test results).

• An inpatient status may not automatically be changed to an “observation stay.” If the patient was still in house at the time this determination was made you would need to follow Condition Code 44 guidance. You can access further guidance specific to Condition Code 44 in MLN Matters Article SE0622.

• “Observation claims exceeding 48 hours may be subject to medical review.” Make patients receiving observation services a priority for your Utilization Review staff.