ED Coding and Reimbursement Alert

Question: Should we report the observation diagnosis codes (Z03-Z05) as primary diagnoses or secondary? Or does it not matter?

Illinois 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:

• Z03 (Encounter for medical observation for suspected diseases and conditions ruled out)
• Z04 (Encounter for examination and observation for other reasons)
• Z05 (Encounter for observation and evaluation of newborn for suspected diseases and conditions ruled out)

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:

“The observation codes are primarily to be used as a principal/ first-listed diagnosis. An observation code may be assigned as a secondary diagnosis code when the patient is being observed for a condition that is ruled out and is unrelated to the principal/ first-listed diagnosis (e.g., patient presents for treatment following injuries sustained in a motor vehicle accident and is also observed for suspected COVID-19 infection that is subsequently ruled out).”

Therefore, you’ll base the status of primary vs. secondary code use on the documentation and the specific circumstances driving the visit.