Inpatient admission followed by observation - payment policy

Policy Definition

Observation Stay is an alternative to an inpatient admission that allows reasonable and necessary time to evaluate and render medically necessary services to a member whose diagnosis and treatment are not expected to exceed 24 hours but may extend to 48 hours, and the need for an inpatient admission can be determined within this specific period.

Emergency Department Services Preceding Observation Stay

When emergency department services precede an observation stay, the emergency department services are incidental to the observation stay and therefore are not reimbursed.

Inpatient Admission Following Observation Stay
• Case rate and DRG-based reimbursement includes all related observation services that occur within three days of the date of admission.

• Per diem–based and percent-of-charge based reimbursement includes any observation stay that converts to an inpatient admission before midnight of the same day and is not separately reimbursed.

• Per diem–based and percent-of-charge based reimbursement does not include an observation stay that converts to an inpatient admission after midnight of the observation day and is separately reimbursed.

SDC/Outpatient Procedure Related to Observation Stay
• Observation services related to a surgical day care (SDC) or other outpatient procedure are considered part of the routine recovery period for the procedure and no separate observation reimbursement will be made.

• Routine recovery is not expected to exceed 24 hours.

Obstetrical Observation Stay

When an obstetrical patient is placed in observation status:
• The entire episode is considered an inpatient admission if delivery occurs prior to discharge.
• The episode is considered an observation stay if delivery does not occur and the member is sent home.
• Reimbursement includes diagnostic testing performed in conjunction with an obstetrical observation stay.