Hospital Observation Services During Global Surgical Period - Billing Guide

The global surgical fee includes payment for hospital observation (codes 99217, 99218, 99219, 99220, 99224, 99225, 99226, 99234, 99235, and 99236) services unless the criteria for use of CPT modifiers “-24,” “-25,” or “-57” are met. Contractors must pay for these services in addition to the global surgical fee only if both of the following requirements are met:

• The hospital observation service meets the criteria needed to justify billing it with CPT modifiers “-24,” “-25,” or “-57” (decision for major surgery); and

• The hospital observation service furnished by the surgeon meets all of the criteria for the hospital observation code billed.

Examples of the decision for surgery during a hospital observation period are:

• An emergency department physician orders hospital outpatient observation services for a patient with a head injury. A neurosurgeon is called in to evaluate the need for surgery while the patient is receiving observation services and decides that the patient requires surgery. The surgeon would bill a new or established office or other outpatient visit code as appropriate with the “-57” modifier to indicate that the decision for surgery was made during the evaluation. The surgeon must bill the office or other outpatient visit code because the patient receiving hospital outpatient observation services is not an inpatient of the hospital. Only the physician who ordered hospital outpatient observation services may bill for observation care.

• A neurosurgeon orders hospital outpatient observation services for a patient with a head injury. During the observation period, the surgeon makes the decision for surgery. The surgeon would bill the appropriate level of hospital observation code with the “-57” modifier to indicate that the decision for surgery was made while the surgeon was providing hospital observation care.


Examples of hospital observation services during the postoperative period of a surgery are:

• A surgeon orders hospital outpatient observation services for a patient with abdominal pain from a kidney stone on the 80th day following a TURP (performed by that surgeon). The surgeon decides that the patient does not require surgery. The surgeon would bill the observation code with CPT modifier “-24” and documentation to support that the observation services are unrelated to the surgery.

• A surgeon orders hospital outpatient observation services for a patient with abdominal pain on the 80th day following a TURP (performed by that surgeon). While the patient is receiving hospital outpatient observation services, the surgeon decides that the patient requires kidney surgery. The surgeon would bill the observation code with HCPCS modifier “-57” to indicate that the decision for surgery was made while the patient was receiving hospital outpatient observation services. The subsequent surgical procedure would be reported with modifier “-79.”

• A surgeon orders hospital outpatient observation services for a patient with abdominal pain on the 20th day following a resection of the colon (performed by that surgeon).
The surgeon determines that the patient requires no further colon surgery and discharges the patient. The surgeon may not bill for the observation services furnished during the global period because they were related to the previous surgery.

An example of a billable hospital observation service on the same day as a procedure is when a physician repairs a laceration of the scalp in the emergency department for a patient with a head injury and then subsequently orders hospital outpatient observation services for that patient. The physician would bill the observation code with a CPT modifier 25 and the procedure code.

Documentation Requirements for Billing Observation or Inpatient Care Services

(Including Admission and Discharge Services)

The physician shall satisfy the E/M documentation guidelines for furnishing observation care or inpatient hospital care. In addition to meeting the documentation requirements for history, examination, and medical decision making, documentation in the medical record shall include:

• Documentation stating the stay for observation care or inpatient hospital care involves 8 hours, but less than 24 hours;

• Documentation identifying the billing physician was present and personally performed the services; and

• Documentation identifying the order for observation services, progress notes, and discharge notes were written by the billing physician.

In the rare circumstance when a patient receives observation services for more than 2 calendar dates, the physician shall bill observation services furnished on day(s) other than the initial or discharge date using subsequent observation care codes. The physician may not use the subsequent hospital care codes since the patient is not an inpatient of the hospital.



D. Admission to Inpatient Status Following Observation Care

If the same physician who ordered hospital outpatient observation services also admits the patient to inpatient status before the end of the date on which the patient began receiving hospital outpatient observation services, pay only an initial hospital visit for the evaluation and management services provided on that date. Medicare payment for the initial hospital visit includes all services provided to the patient on the date of admission by that physician, regardless of the site of service. The physician may not bill an initial or subsequent observation care code for services on the date that he or she admits the patient to inpatient status. If the patient is admitted to inpatient status from hospital outpatient observation care subsequent to the date of initiation of observation services, the physician must bill an initial hospital visit for the services provided on that date. The physician may not bill the hospital observation discharge management code (code 99217) or an outpatient/office visit for the care provided while the patient received hospital outpatient observation services on the date of admission to inpatient status.

CPT CODE 99218 --99220 - PAYMENT Guide

 Physician Billing for Observation Care Following Initiation of Observation Services

Similar to initial observation codes, payment for a subsequent observation care code is for all the care rendered by the treating physician on the day(s) other than the initial or discharge date. All other physicians who furnish consultations or additional evaluations or services while the patient is receiving hospital outpatient observation services must bill the appropriate outpatient service codes.

When a patient receives observation care for less than 8 hours on the same calendar date, the Initial Observation Care, from CPT code range 99218 – 99220, shall be reported by the physician. The Observation Care Discharge Service, CPT code 99217, shall not be reported for this scenario.

When a patient is admitted for observation care and then is discharged on a different calendar date, the physician shall report Initial Observation Care, from CPT code range 99218 – 99220, and CPT observation care discharge CPT code 99217. On the rare occasion when a patient remains in observation care for 3 days, the physician shall report an initial observation care code (99218-99220) for the first day of observation care, a subsequent observation care code (99224-99226) for the second day of observation care, and an observation care discharge CPT code 99217 for the observation care on the discharge date. When observation care continues beyond 3 days, the physician shall report a subsequent observation care code (99224-99226) for each day between the first day of observation care and the discharge date.

When a patient receives observation care for a minimum of 8 hours, but less than 24 hours, and is discharged on the same calendar date, Observation or Inpatient Care Services (Including Admission and Discharge Services) from CPT code range 99234 – 99236 shall be reported. The observation discharge, CPT code 99217, cannot also be reported for this scenario.

Who May Bill Observation Care Codes

Observation care is a well-defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and reassessment, that are furnished while a decision is being made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation services are commonly ordered for patients who present to the emergency department and who then require a significant period of treatment or monitoring in order to make a decision concerning their admission or discharge.

In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours. In the majority of cases, the decision whether to discharge a patient from the hospital following resolution of the reason for the observation care or to admit the patient as an inpatient can be made in less than 48 hours, usually in less than 24 hours.

Contractors pay for initial observation care billed by only the physician who ordered hospital outpatient observation services and was responsible for the patient during his/her observation care. A physician who does not have inpatient admitting privileges but who is authorized to furnish hospital outpatient observation services may bill these codes.

For a physician to bill observation care codes, there must be a medical observation record for the patient which contains dated and timed physician’s orders regarding the observation services the patient is to receive, nursing notes, and progress notes prepared by the physician while the patient received observation services. This record must be in addition to any record prepared as a result of an emergency department or outpatient clinic encounter.

Payment for an initial observation care code is for all the care rendered by the ordering physician on the date the patient’s observation services began. All other physicians who furnish consultations or additional evaluations or services while the patient is receiving hospital outpatient observation services must bill the appropriate outpatient service codes.

For example, if an internist orders observation services and asks another physician to additionally evaluate the patient, only the internist may bill the initial and subsequent observation care codes. The other physician who evaluates the patient must bill the new or established office or other outpatient visit codes as appropriate.

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.

Observation CPT code 99224, 99226 , 99234 , 99236 - Q & A

Are observation codes considered outpatient or inpatient?

Q. Are observation care codes 99224-99226 and 99234-99236 considered outpatient or inpatient codes?
A. The Centers for Medicare and Medicaid Services (CMS) Internet-only manual directly addresses this point by explaining that while a patient is in observation care they are not considered an inpatient of the hospital. These codes (99224-99226 and 99234-99236) are designated as hospital outpatient observation services.

Q. Does the billing physician need to document the time the patient spent in observation care, or the time the physician spent tending to the patient?
A. The time that must be documented relates to the time that the patient is in observation care. Note that the codes selected regarding services furnished during this time are directly related to how long the patient remains in this status.codes (99224-99226 and 99234-99236) are designated as hospital outpatient observation services.


Q. Does the documentation of the time and date that a patient is in observation care pertain to the time during which the patient was admitted to observation care, or does it start at the time that the physician provides services (i.e., completes a history and physical)?

A. Per the Centers for Medicare & Medicaid Services (CMS) Internet-only manual (IOM):
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.
Observation time ends when all medically necessary services related to observation care are completed.

Specific coding guidelines are given in the IOM, based on the total time during which the patient is admitted for observation care, without regard to when specific services are provided.


Where to find detailed scenarios pertaining to observation care codes
Q. Where can I find information explaining and distinguishing between codes and guidelines pertaining to observation care and/or inpatient admission/discharge?

A. The CMS Internet-only manual provides detailed scenarios pertaining to observation care coding, and guidelines regarding billing/coding for inpatient hospital services.



Physician must document date and time of medical record

Q. In regard to observation care, must a physician document date and time in the medical record, or is the nursing documentation sufficient to verify date and time?

A. Regarding documentation requirements on behalf of a physician who is billing for observation care, the Internet-only manual states:
For a physician to bill the initial observation care codes, there must be a medical observation record for the patient which contains dated and timed physician’s orders regarding the observation services the patient is to receive, nursing notes, and progress notes prepared by the physician while the patient received observation services. This record must be in addition to any record prepared as a result of an emergency department or outpatient clinic encounter


Observation care vs. time spent tending to the patient

Q. Does the billing physician need to document the time the patient spent in observation care, or the time the physician spent tending to the patient?
A. The time that must be documented relates to the time that the patient is in observation care. Note that the codes selected regarding services furnished during this time are directly related to how long the patient remains in this status.