Ambulatory Coding & Payment Report
Reader Question: Observation
Question: When a patient is admitted for observation directly from the physician's office, should we assign and bill an E/M code?
Michigan Subscriber
Answer: The following answer is an excerpt from the Centers for Medicare and Medicaid Services FAQs on claims at its outpatient prospective payment system (OPPS): Because observation is a packaged service, it will not be reimbursed if it is the only OPPS service on a claim. However, the admission of a patient to observation generally involves a low-level E/M visit, which the hospital bills, and whatever office visit the physician who arranged for the admission billed. Therefore, when a patient arrives for observation arranged by a physician in the community (a so-called "direct admit to observation") and is not seen or assessed by a hospital-based physician, the hospital may bill a low-level visit code. This level visit code will capture services such as the baseline nursing assessment, creating a medical record and recording and initiating telephone orders.
Billing tips:
You can code the visit only once during the observation period.
Show the observation charges in revenue code 762, and the number of hours the patient was in observation status in the units field.
Payment for those services is packaged into the APC for the visit. Other services performed in connection with observation, such as lab and radiology, should be billed as well.
Note: The medical necessity of observation is questionable when a physician does not need to attend.
- Published on 2001-07-01
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