Question: Should we report the observation diagnosis codes (Z03-Z05) as primary diagnoses or secondary? Or does it not matter? Pennsylvania Subscriber Answer: Although in the past, you needed to report the observation diagnosis codes as principal diagnoses, that is no longer the case. The ICD-10-CM 2021 Guidelines included information about the following three observation category codes: In previous versions of the ICD-10-CM guidelines, coders were instructed to exclusively report observation codes as first-listed diagnoses. The 2021 guidelines revise the wording to state that codes from code range Z03-Z05 should “primarily” be used as principal/first-listed diagnoses. The guidelines add the following instruction outlining what circumstances allow for reporting of code range Z03-Z05 as secondary codes: