1. Observation Medicare and Medicaid The Ins and Outs of Coding and Billing
June 2, 2014
Jean C. Russell, MS, RHIT

2. Agenda Background NY Medicaid Observation
Medicare – IPPS 2014 Final Rule
Rebilling Denied Part A as Part B
Medicare – Current Billing Requirements for Observation
Medicare – OPPS 2014 Changes
Questions / Discussion
Observation – The ins and outs of billing and coding for Observation
It has become increasingly difficult to follow the latest regulatory requirements for billing NY Medicaid and Medicare appropriately for observation services from both an outpatient and inpatient coding perspective. This presentation will summarize the latest requirements, what services can and should be coded and billed as outpatient observation, and how these services are reimbursed. Recent regulatory changes impacting observation will be included, as well as proposed changes that will impact observation billing in the future. In addition, we will summarize how and when a Part A Medicare inpatient claim can be billed to Part B.
Program Objectives:
Go over the latest Medicare OPPS and Inpatient Observation Changes
Identify the changes to admission status determinations under Medicare IPPS
Lean how Medicare OPPS has changed Observation reporting and reimbursement
Provide information on how to rebill a Part A denied claim as Part B
Understand the latest NY Medicaid Observation Requirements
Review how to bill Medicaid and how Observation will be paid

3. Background 3

4. Level of Care Outpatient Status Outpatient care Observation service
For example – Clinic, Emergency department, Outpatient surgery Extended surgical recovery over-night
Observation service
Medicare Part B
Paid on APCs (Medicare) and APGs (Medicaid)
Inpatient Status
Medicare Part A
Paid on MS-DRGs (Medicare) and APR-DRGs (Medicaid)

5. Medicare Observation Vs. Inpatient Stay
Observation is Part B, Inpatient is Part A
Part A has a single deductible (co-pay) for a hospital stay
Part A covers most of the cost of the stay
Part B has individual co-pays for each of the procedures performed (e.g., x-rays, MRIs, ED visit, drug administrations)
The cap on each individual co-pay is set at the Medicare inpatient cap
But the sum of the co-pays can be significant
Cost to patient may well be higher as observation

6. Medicare Observation Vs. Inpatient Stay
Certain services covered in a Part A visit are not covered under Part B
E.g., self-administered drugs
Services that did not meet medical necessity (e.g., radiology)
SNF coverage under Medicare requires a medically necessary 3 day admission prior to the SNF

7. Observation Cases Increasing
According to a recent article:
The use of observation status has nearly doubled in the past six years
Observation stays of more than 48 hours have increased from 3% to 8%
Number of patients in the hospital for at least three days that could not qualify for SNF due to observation was over 600,000 last year alone
Shorter stay inpatients cases are closely scrutinized
Sometimes observation is a fallback to ensure the visit will be covered
Source:

8. Short Stay Inpatient Admission Reviews
Increasing scrutiny by private payers and auditors
Target of Office Inspector General (OIG) and Office of Medicaid Inspector General (OMIG) audit plans
Focus of Medicare’s PEPPER
Reviewed by Medicaid Integrity Contractors (MIC) and Medicare Recovery Auditors
Reviewed by the Medicare Administrator Contractor (MAC) – NGS for New York
And now subject to the Two Midnight Rule

9. NY Medicaid Observation Coding, Billing and Payment9

10. NY Medicaid and Observation
Effective April 1, 2011
Medicaid began coverage of emergency room observation services
However, the requirements for billing for the service were strict, including:
Waiver requirement
Distinct observation unit
NY State Medicare Update, May 2011,

11. April 2011 Requirements Observation Waiver Requirements:
Distinct physical space (not scatter bed model)
Unit can only be used for observation
Patients should require 8-24 hours of care
Overseen by the ER
Patients must come through the ER
NY State Medicare Update, May 2011,

12. February 2012 Changes
Effective January 11, 2012, observation units had to be established in compliance with Title 10, Section , rather than through a waiver
Hospitals that previously provided services under the waiver had 24 months of the effective date of the regulation change (i.e., January 11, 2014) to be in compliance with the regulations
Health Department Regulations Adopted for Observation Unit Operating Standards
New York State Medicaid, including Medicaid managed care and Family Health Plus (FHPlus) plans, have reimbursed providers, effective April 1, 2011, for hospital observation services delivered in observation units. Payment has been contingent upon approval of a site-specific waiver from the Office of Health Systems Management (OHSM), Division of Certification and Surveillance.
Effective January 11, 2012, Title 10 of the New York Code of Rules and Regulations, Section , was amended establishing observation unit operating standards. Accordingly, new observation units must be established in compliance with the process and standards set forth in section , rather than through a waiver. New York State Medicaid will reimburse providers for observation services in observation units that meet the new standards identified in the recently filed regulations.
The regulations governing provision of observation services are available online at:
New York State Medicaid will continue to reimburse hospitals for observation services delivered in an observation unit under authority of a waiver issued by the OHSM. However, please note that pursuant to the recently adopted regulations, facilities that had been granted a waiver are required to comply with the provisions of the new regulatory standards within 24 months of the effective date of the regulation change (i.e., January 11, 2014). Facilities that are not in compliance with the regulations by January 11, 2014, will not be eligible for reimbursement.
Previously published billing instructions for observation services may be found in the May 2011 Medicaid Update at:
Please contact the Division of Certification and Surveillance at (518) , if you have questions about the process for establishing an observation unit or operating standards.
If you have questions about Medicaid reimbursement for observation services, please contact the Division of Program Development and Management at (518)
NY State Medicare Update, February 2012,

13. Changes Effective April 1, 2013
Impacts NY Medicaid, including FFS, Medicaid Managed Care and Family Health Plus
Expanded coverage of Observation Services
Observation services are designed for patients for that cannot be treated and released in the ED, but should reasonably be expected to be discharged within 48 hours
A patient must be in observation at least eight hours (with clinical justification)
This is in addition to time spent in the ED prior to receiving observation services
“Observation Services Legislation and Medicaid Payment
Medicaid May 2013 Update:
Effective April 1, 2013, New York State Medicaid, including Medicaid fee-for-service (FFS), Medicaid Managed Care and Family Health Plus (FHPlus) plans, will expand coverage of observation services. Existing guidelines can be found online at May 2011 Medicaid Update and February 2012 Medicaid Update.
In response to legislation enacted October 3, 2012, (Laws of New York, 2012, Chapter 471), regulations governing observation services are being revised. However, in the interim, to obtain payment for observation services providers should bill in accordance with these guidelines.
Hospitals may provide observation services for those patients for whom a diagnosis and a determination concerning admission, discharge or transfer cannot be accomplished within eight hours after presenting in the Emergency Department (ED), but can reasonably be expectedwithin 48 hours. In order to be reimbursed for observation services, a patient must be in observation status for a minimum of eight hours (with clinical justification). This is in addition to any time that the patient spent in the ED prior to receiving observation services.

14. April 2013 Changes Observation services may now be provided in:
An approved unit that has an existing waiver
An existing observation unit in compliance with 10 NYCRR
New distinct observation unit in compliance with 10 NYCRR
Inpatient bed (i.e., “scatter bed”)
The ED (for CAH or sole community hospitals)
Observation services may be provided up to 48 hours, after which the patient should be admitted or transferred or discharged
Observation services may be provided in:
approved units that have existing waivers;
existing observation units (in compliance with current regulations at 10 NYCRR (g));
new distinct observation units (in compliance with 10 NYCRR (g));
inpatient beds; or
the ED (only for hospitals designated as critical access hospitals or sole community hospitals).
A patient may remain in observation for up to 48 hours and then the hospital must determine if the patient is to be admitted, transferred to another hospital or discharged from the facility.

15. April 2013 Changes
Required documentation for Medicaid payment for observation includes:
A clinical justification for observation status
A working diagnosis
Tests/treatments administered
Progress notes by physician or mid-level, and
Final disposition of the patient
Billing Guidelines and Requirements
The following Medicaid payment policy and reimbursement criteria will apply concerning Medicaid payment for observation services. Required documentation for Medicaid payment for observation services include:
a clinical justification for observation status;
a working diagnosis;
any tests or treatments administered while the patient is in observation status;
progress notes by a responsible Physician, Physician Assistant, Midwife or Nurse Practitioner; and
final disposition of the patient from staff assigned to observation.

16. April 2013 Changes
Must be assigned from the ED or hospital OP department if the facility does not have an ED
Service is billed with HCPCS code G0378, hospital observation per hour
Groups to APG 450
Units reported should be number of hours, up to 48
Will only be reimbursed if units exceed 8 (that is 8 to 48 hours)
Should still be reported even if less than 8
Patients may be assigned to observation services through the ED (or hospital outpatient department if the facility does not have an ED). Medicaid covers observation services designated by HCPCS G0378 (hospital observation service, per hour) which groups to Ambulatory Patient Group (APG) 450, and is subject to consolidation and bundling logic. Observation services may be provided for up to 48 hours.
Medicaid pays for observation services on an hourly basis for up to 48 hours (excluding time in ED). The number of hours in observation status must be coded in the units of service field of the claim line on which G0378 is coded. The appropriate CPT/HCPCS codes for all ancillary services provided to the patient while in observation status should also be reported on the claim. Facilities will only be paid for observation if the length of stay in observation exceeds eight hours. If the length of stay in observation is less than 8 hours, the stay is not reimbursable by Medicaid. Nevertheless, providers should always comprehensively code all services provided during a visit/episode.

17. April 2013 Changes
Observation ends when patient is either discharged or admitted
If patient is admitted, only the inpatient claim should be submitted for payment
Charges from the outpatient part of the visit are included on the inpatient claim
If the patient is transferred, the ED and observation services may be submitted for payment
Observation services end when the patient is admitted as an inpatient, or is discharged from the hospital. If the patient is admitted to inpatient status, only the inpatient admission may be submitted for payment and the emergency room services and associated observation services should not be billed to Medicaid. If the patient must be transferred to another facility, the emergency room and observation services may be submitted for payment.

18. April 2013 Changes
Time away from observation should be excluded from the observation time
Significant procedures such as MRI, PET and CT scans will result in G0378 being packaged (i.e., not paid)
Low level ancillaries will allow observation to be paid separately
Note: Only those hours that the patient is actually in the observation unit may be billed with G0378. Significant procedures or high intensity ancillaries (MRI, PET scans, CT scans) will cause G0378 to package, meaning it will not be paid separately. Low level ancillaries (X-rays, laboratory tests) and drugs will not cause G0378 to package and Observation will be paid separately.

19. April 2013 Changes
Discrete observation unit established in compliance with 10 NYCR reported with the UC modifier – reimbursed at an enhanced rate (20% higher)
Scatter bed services reported without the UC modifier
Order for observation must be clear and must clearly identify observation as outpatient
Patient must be advised that they are outpatient and the stay does not meet Medicare inpatient requirements for SNF services
The UC modifier should be added to the observation claim line if the service is being provided in a discrete observation unit (established in compliance with 10 NYCRR (g)). Facilities will be reimbursed an enhanced hourly rate (i.e., 20 percent higher) for providing observation in designated units if they code the UC modifier. However, observation services provided in non-designated units (i.e., "scattered site beds") should be coded using G0378 without the UC modifier.
Patients that are assigned to observation services must be advised of their status, verbally and in writing. This notification must clearly identify observation services as outpatient in nature, and indicate that the services will be subject to outpatient rules and co-payment requirements. The patient must also be advised that outpatient services do not satisfy Medicare inpatient requirements for skilled nursing facility services.
Source: May 2013 Medicaid Update,

20. 3M EAPG October 2013 Changes APGs 500-502 are new in 2013
APG 492 is EAPG Type Incidental
APG 450 is EAPG Type Ancillary
APGs are EAPG Types Medical

21. APG Logic for New Observation APGs
G0378 maps to APG 450
G0379 and other observation CPTs map to APG 492

22. Ancillary Observation – APG 450
Billed with G0378, Hospital observation service, per hour
Paid with units >= 8, should be <= 48
UC modifier if discrete unit
Typical rate code 1402, Emergency department
Must have a medical visit (e.g., 99285)
Groups to APG 450, Observation
Relative Weight = (down from , but now is per hour)
Payment $24 (upstate) to $31 (downstate) per hour
Paid in addition to ED visit, packaged with significant procedures

23. Medical Observation – APGs 500, 501, 502
Medical observation APG assignment
Must be reported:
A CPT or HCPCS code assigned to APG 492 (e.g., G0379)
Plus G0378 which is assigned to ancillary observation APG 450
EAPG 492 changes to one of three medical EAPGs (if all criteria met)
500 ENCOUNTER/REFERRAL FOR OBSERVATION - OBSTETRICAL
501 ENCOUNTER/REFERRAL FOR OBSERVATION - OTHER DIAGNOSES
502 ENCOUNTER/REFERRAL FOR OBSERVATION - BEHAVIORAL HEALTH
Final medical observation APG assignment is determined by primary dx code
APG 450 is packaged
Observation is packaged if a significant procedure is reported, e.g., – Fetal Stress Test

24. Medicare IPPS Final Rule Changes Effective 10/1/201324

25. Inpatient Versus Observation
Order - Inpatient order must be clear “admit to inpatient” or “admit as an inpatient” – cannot be vague such as “admit to C5”
The word “admit” alone is not sufficient
Length of Stay - Presumed to be medically necessary if the stay crossed two midnights for “medically necessary services”
Order must document the expectation
Less than two midnights would be presumed to not meet inpatient criteria

26. Medical Review Policies
Two midnight benchmark
Begins when the patient starts hospital care (i.e., comes into the ED)
Two midnight presumption
Presumed to meet medical necessity if the stay was at least two midnights
Reviews will focus on inpatients with stays less than two midnights

27. Physician Certification
Physician certification required
Authentication of the order to admit
Provides the reason for the inpatient services
Estimates the time the patient will need to be in the hospital and
The plans for post-hospital care
The physician certification must be completed, signed, and dated and in the medical record prior to discharge
A specific format is not required
Physician Certification of inpatient services:
Authentication of the practitioner order
Reason for inpatient services
The estimated time the beneficiary requires or required in the hospital
The plans for post-hospital care
Timing: The certification must be completed, signed, dated and documented in the medical record prior to discharge
Authorization to sign the certification: The certification or recertification may be signed only by one of the following:
(1) A physician who is a doctor of medicine or osteopathy.
(2) A dentist in the circumstances specified in 42 CFR (d).
(3) A doctor of podiatric medicine
Format:
As specified in 42 CFR , no specific procedures or forms are required for certification and recertification statements. The provider may adopt any method that permits verification. The certification and recertification statements may be entered on forms, notes, or records that the appropriate individual signs, or on a special separate form.

28. Recent Clarifications
For patients transferred in, the receiving hospital can take into account the time spent at the transferring hospital when determining whether the patient met the 2-midnight benchmark
Off-campus ED’s are still considered part of the hospital and time spent in these departments would count into the 2-midnight calculation
CMS has requested re-reviews of denials made during the probe audit to ensure they are consistent with these clarifications
Source:
1. One of the most significant, and awaited, clarifications relates to patients transferred from another hospital. CMS clarified in its guidance to hospitals that the receiving hospital may take into account the time the patient spent at the transferring hospital when determining whether the patient meets the 2-midnight benchmark for admission. The hospital should be careful not to include any wait time or time when care was delayed. CMS stated that review contractors may request records from the transferring hospital to verify time spent there prior to transfer. 
2. There was also a clarification related to off-campus provider-based emergency departments (e.g., freestanding ED). CMS clarified that when these locations are provider-based facilities, they are like any other department of the hospital and time spent in the freestanding ED prior to admission would count into the 2-midnight calculation in the same manner as time in a traditional ED. However, they did note that the transportation of the patient from the freestanding ED to the hospital for admission would be the responsibility of the hospital (i.e., Medicare would not pay for the transport), noting that it would be similar to the patient moving from the on-campus ED to a specified floor for admission.
3. Finally, CMS announced that it is requesting the MACs re-review denials made in the probe and educate audits to this point. CMS wants the MACs to be certain that any denials are consistent with the most recent guidance and clarifications issued, particularly related to orders and certification. As a result of a re-review of a denial, the MAC can issue payment without an appeal by the provider if they find the claim is payable in light of the most recent guidance.
Because a claim may be paid as a result of a re-review, CMS encouraged providers to verify with the MAC whether a claim had been “re-reviewed” prior to filing an appeal. CMS is waiving the timely filing requirement of 120 days for appeals of denials for claims with dates of service prior to January 30 (when the most recent order and certification guidance was updated) and is allowing appeals to be submitted through September 30, 2014, for those denials if they are not overturned on re-review. 

29. Rebilling Opportunities
When an inpatient stay has been deemed not medically necessary after the beneficiary has been discharged
Could be due to a RAC denial, a MAC denial, a prepayment review, or the provider review itself
Bill all services up to the inpatient order as Part B OPPS (bill type 13x)
Bill all services after the inpatient order as Inpatient Part B (bill type 12x)
Source: NGS website release 5/7/2012

30. Medicare Timely Filing
Subject to the Timely Filing Rule
Medicare defines the timely filing period as no later than 12 months after the date of service
Inpatient claims denied later than this are past the timely filing limit and cannot be corrected and rebilled
Unfortunately, many times auditor denials are after the timely filing, in which case the Hospital has no option for recouping payment
Changes the March 13, 2013 CMS ruling
70 - Time Limitations for Filing Part A and Part B Claims
(Rev. 2140, Issued: , Effective: , Implementation: )
Medicare regulations at 42 CFR define the timely filing period for Medicare fee for service claims. In general, such claims must be filed to the appropriate Medicare claims processing contractor no later than 12 months, or 1 calendar year, after the date the services were furnished. (See section §70.7 below for details of the exceptions to the 12 month timely filing limit.)
Chapter 1, Medicare Claims Processing Manual, Section 70 – Time Limits for Filing Part A and Part B Claims

31. Rebilling Steps Steps to follow:
IP Claim - Cancelled
Bill type 110
ICD-9 Dx Codes
And Procedures
IP Part B
Bill type 121
Post IP Order
CPT Procedures
OP Claim
Bill type 13x
CPT Pre IP Order Procedures
Steps to follow:
Submit an inpatient no-payment claim for the inpatient stay using bill type 110
Submit an inpatient Part B claim for the billable services that occurred during the inpatient stay using bill type 12X
That is an Inpatient Part B claim for services provided after the inpatient admit order
Final rule expanded this to include just about all services except services that have to be outpatient such as medical visit services (ED /Observation /G0379), diabetic self management training (DSMT)

32. IP Claim - Cancelled
Bill type 110
ICD-9 Dx and Procedures
IP Part B
Bill type 121
Post IP Order
CPT Procedures
OP Claim
Bill type 13x
CPT Pre IP Order Procedures
Clarification
Submit an outpatient claim(s) for the outpatient preadmission services that occurred prior to the non-covered inpatient stay using bill type 13X
Based on the fact that the submission of outpatient preadmission services is permitted when there is no Part A payment made for the inpatient stay
That is, the outpatient services are not bound by the 72 hour rule
Would include the ED or clinic visit that occurred prior to the order to admit
Source: and

33. The Beneficiary
Beneficiaries are entitled to receive information about coinsurance and deductibles
Inform beneficiaries in writing that the inpatient stay is not going to be billed to Medicare as a covered claim and why
Beneficiary may be responsible for coinsurance (for the 12X bill and for the 13X bill) instead of an inpatient deductible
If the inpatient deductible has already been paid, it is the responsibility of the provider to make a refund as appropriate
Beneficiaries are entitled to receive information about coinsurance and deductibles. CMS has a duty to protect these rights. The requirement of the decision resulting in a change in patient status be made before the beneficiary is discharged is intended to ensure that the beneficiary is fully informed about the change in status and its impact on the coinsurance and deductible for which the beneficiary would be responsible. For example, if a patient has already met her Part A deductible, then informing the beneficiary a month after discharge that she will now be responsible for additional coinsurance as an outpatient could impose a financial hardship. According to the Conditions of Participation (COP) Section , hospitals are required to protect and promote patient rights.
Providers may inform beneficiaries in writing that the inpatient stay is not going to be billed to Medicare as a covered claim and why and that the beneficiary may be responsible for coinsurance (for the 12X bill for the inpatient ancillary services and for the 13X bill for any applicable outpatient preadmission services) instead of an inpatient deductible. If the inpatient deductible has already been paid, it is the responsibility of the provider to make a refund as appropriate.

34. Rebilling for Denied Part A
Chapter 3 of the Medicare Claims Processing Manual states that hospitals have to bundle most outpatient services performed within 72 hours of an inpatient stay “when Part A payment can be made on the inpatient stay”
But this does not apply when no Part A payment can be made on the inpatient claim
in that it states that the payment window applies when Part A payment can be made on the inpatient claim, thus concluding that it does not apply when no Part A payment can be made on the inpatient claim
Source:

35. Inpatient Part B Expansion
Expansion of services that can be billed now includes most services, even PT/OT/ST
Does not apply for other circumstances when there is no Part A payment such as when Part A benefits have been exhausted
Does not include observation since unless there is an order for observation prior to the order for inpatient (in which case it would be billed on the 13x bill)
List of rev codes not covered, see MLN Matters SE1333,

36. Condition Code 44 Order Inpatient Observation
Must occur Prior to Discharge
CM / UR physician advisor / Attending physician all involved in decision
Should be relatively rare
Requires signature of both UR and Attending physicians
Must notify the patient (signed document suggested) what it means to be an observation case
Observation time starts with the observation order change
Often not w/ the required 8 hours
Result is a bill type 131 outpatient claim

37. Current Medicare Rules Observation Coding, Billing and Payment37

38. Observation is a Timed Service
Reported by the hour – rounded to the nearest hour
Starts: physician order time and date and observation treatment has started
Clear order to admit as inpatient Vs. refer to observation
Nursing documentation indicating observation care has started
Ends: physician order time and date to discharge from observation or hospital and medical treatment has ended
Note that “discharge after consult” or other critical, but delayed medical test should be clearly documented
“Waiting for a ride” is not considered part of observation time
Reporting Hours of Observation
(Rev. 2234, Issued: , Effective: , Implementation: )
Observation time begins at the clock time documented in the patient’s medical record, which coincides with the time that observation care is initiated in accordance with a physician’s order. Hospitals should round to the nearest hour. For example, a patient who began receiving observation services at 3:03 p.m. according to the nurses’ notes and was discharged to home at 9:45 p.m. when observation care and other outpatient services were completed, should have a “7” placed in the units field of the reported observation HCPCS code. (Chapter 4, Medicare Claims Processing Manual)
Chapter 4, Medicare Claims Processing Manual,

39. Observation is a Timed Service
Does not include time that is:
Concurrent with diagnostic testing or therapeutic services that includes active monitoring, “(e.g., colonoscopy, chemotherapy)”, or
Services that are part of another service (e.g., PACU)
Need to implement a system to extract other procedural time from observation hours
General standing orders for observation services following all outpatient surgery are not recognized. Hospitals should not report as observation care, services that are part of another Part B service, such as postoperative monitoring during a standard recovery period (e.g., 4-6 hours), which should be billed as recovery room services. Similarly, in the case of patients who undergo diagnostic testing in a hospital outpatient department, routine preparation services furnished prior to the testing and recovery afterwards are included in the payments for those diagnostic services.
Observation services should not be billed concurrently with diagnostic or therapeutic services for which active monitoring is a part of the procedure (e.g., colonoscopy, chemotherapy). In situations where such a procedure interrupts observation services, hospitals may determine the most appropriate way to account for this time. For example, a hospital may record for each period of observation services the beginning and ending times during the hospital outpatient encounter and add the length of time for the periods of observation services together to reach the total number of units reported on the claim for the hourly observation services HCPCS code G0378 (Hospital observation service, per hour). A hospital may also deduct the average length of time of the interrupting procedure, from the total duration of time that the patient receives observation services.
Observation time ends when all medically necessary services related to observation care are completed. For example, this could be before discharge when the need for observation has ended, but other medically necessary services not meeting the definition of observation care are provided (in which case, the additional medically necessary services would be billed separately or included as part of the emergency department or clinic visit). Alternatively, the end time of observation services may coincide with the time the patient is actually discharged from the hospital or admitted as an inpatient. Observation time may include medically necessary services and follow-up care provided after the time that the physician writes the discharge order, but before the patient is discharged. However, reported observation time would not include the time patients remain in the hospital after treatment is finished for reasons such as waiting for transportation home.
If a period of observation spans more than 1 calendar day, all of the hours for the entire period of observation must be included on a single line and the date of service for that line is the date that observation care begins. Source, Medicare Claims Processing Manual, Chapter 4 -

40. Reporting Observation
If a period of observation spans more than one (1) calendar day, all of the hours for the entire period of observation must be included on a single line and the date of service for that line is the date that observation care begins
Source, Medicare Claims Processing Manual, Chapter 4 -

41. Reporting Infusions
“Drug administration services are to be reported with a line item date of service on the day they are provided. In addition, only one initial drug administration service is to be reported per vascular access site per encounter, including during an encounter where observation services span more than 1 calendar day.”
Source, CMS Medicare Claims Processing Manual, Chapter 4, Section 230.2,

42. Reporting Observation
Medicare reporting
Revenue code 762, observation
G0378, Hospital observation service, per hour
Units - The number of hours
Time must be calculated
Suggest a documentation review required to ensure accurate reporting of units
If calculated automatically, perform an internal audit on at least a select number of cases

43. Observation Coverage
Should not be billed for monitoring and care during standard postoperative recovery period (e.g., 4-6 hrs)
Can be billed for complications requiring extended post-surgical recovery care
But will not be reimbursed for the composite rate when there is a surgery prior to the observation
Needs to be ordered 43

44. Observation Payment
Extended Assessment and Management composite payment that covers an episode of care involving more intense assessment and management, includes:
A high-level clinic or ED visit, direct referral to observation, or critical care service
8 hours or more of observation services
Other associated services (packaged)

45. Observation Changes for 2014
Significant increase in packaged services (e.g., lab and stress tests)
Reduction of clinic E/M codes to a single G code (G0463)
Required changes to observation composites
Not updated for 2013

46. Extended Assessment and Management Composite (EAM)
In 2013 there were two composite EAMs – 8002 and 8003

47. Level I Extended Assessment and Management - APC 8002
G0378 (8 or more units)
Revenue code 762 (observation)
Reported with:
G0379 (direct referral) on the same date of service, or
99205 / (level V clinic visit) on the same date or day before
Reported without a surgical (Status T) procedure on the same day or day before
National APC Rate (2013) = $440.70
No diagnosis requirement

48. Level II Extended Assessment and Management APC 8003
G0378 (8 or more units)
Revenue code 762 (observation)
Reported with:
99284 / (high-level ED visit), or
99291 (critical care), or
G0384 (high level Type B ED visit)
On the same day or day before the observation
Reported without a surgical (Status T) procedure on the same day or day before
National APC Rate (2013) = $798.47
No diagnosis requirement
High Level E/M

49. Extended Assessment and Management Composite (EAM)
Effective 1/1/2014 there will be only one composite EAM – 8009
G0378 (8 or more units), revenue code 762 (observation) with no diagnosis requirement
Reported with an E/M service:
99284 / (high-level ED visit) (critical care)
G0384 (high level Type B ED visit) G0463 (clinic E/M)
Or G0379 (direct referral to observation from physician ofc)
On the same day or day before the observation
Reported without a surgical (Status T) procedure on the same day or day before
National APC Rate (2014) = $1,198.91

50. Observation Payment

51. G0379 – Direct Referal
G0379 – Direct referral to observation, moved to APC 608, payment increased to $ (2014) from $ (2013)
reimbursed as a (APC 604)
reimbursed as a – new patient clinic level V
2014 – reimbursed between a level IV and V ED E/M
Paid only when observation is not paid
Improved reflection of the cost associated
with direct referrals to observation

52. What this means to Medicare Observation
Increased composite reimbursement
Extensive bundling of services
Add-ons, ancillaries, lab and drugs not separately paid
Composite payment increases, but packaging of services increases as well

53. Summary
Observation is payable by both Medicare and Medicaid as an outpatient service
Impacts reimbursement for hospital and cost for patients
There are specific requirements that must be met to bill observation correctly
Significant changes started in October
More changes were made in January

54. Questions/Discussion

56. Contact Us
Richard Cooley Phone: Matthew Lawney Phone: Jean Russell Phone:

58. CPT®
Current Procedural Terminology (CPT®) Copyright 2013 American Medical Association All Rights Reserved Registered trademark of the AMA 58

59. Disclaimer
Information and opinions included in this presentation are provided based on our interpretation of current available regulatory resources. No representation is made as to the completeness or accuracy of the information. Please refer to your payer or specific regulatory guidelines as necessary.