Observation Services: A Guide for What and When to Document

CMS Observation Services

Observation services are one of the most challenging areas that hospitals face. Physicians must document carefully in order to justify observation services, but it’s not always easy to know what should be documented at the time patients are discharged from such services. Observation must be distinguished from inpatient admissions, and the documentation must support the coding and billing process.

What Counts as “Observation Services”?

According to CMS, observation care is a well-defined area, but in practice, it’s anything but clear.

The agency refers to observation care as “a 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,” according to a recent set of relevant CMS FAQs.

Common in situations when patients present to the emergency department but then require a significant period of treatment or monitoring in order to make a decision concerning their admission or discharge, according to CMS, observation services involve medical decision-making, coding and billing issues, and a mountain of tracking requirements. It’s also important to understand what does not count as observation services – things like continuous monitoring, routine prep or recovery prior to or following diagnostic or surgical services, and situations when patients are awaiting placement in nursing homes.

How should physicians go about documenting this tricky set of services?

Compliance Hot Spots

Hospitals are faced with a range of compliance issues relating to observation care, including the “Two-Midnight Rule,” a source of major ongoing controversy over observation and inpatient admissions. This rule addresses whether an inpatient admission for a stay that lasts less than two midnights will be appropriate for Part A payment. Decision-making that is related to the Two-Midnight Rule impacts payments, and documentation of services surrounding such cases is thus especially important.

Condition Code 44, which covers situation in which an inpatient admission is changed to an outpatient observation, is also a compliance hot spot, as physicians and hospitals need to understand the documentation requirements surrounding its use – and they’re complicated.

How Medicare pays for observation services, especially when post-outpatient surgical “extended recovery” is involved, is also a perennial area of concern, especially when Status Indicator “T” services are provided in connection with observation services.

Full MOON Rising

Add to these concerns CMS’s recent update of its standardized notice ­– the Medicare Outpatient Observation Notice, or the “MOON form” – to inform Medicare beneficiaries and health plan enrollees of their status as outpatients receiving observation services and not inpatients. Benes must be informed in writing after 24 hours, but before 36 hours have elapsed, and the notice, which must be signed by the bene or a representative, must explain the difference in their status relative to billing and payment.

Mandated by the 2015 Federal Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act), the MOON was required to be put into place by March 8, 2017. Is your facility addressing proper use of the MOON?

Observe and Learn

Conceptually, observation is a simple concept. So why all of these coding, billing, documentation and compliance issues with observation? In order to determine when a patient can be safely discharged, hospital staff needs a thorough understanding of the relevant and most recent coding and billing requirements for observations.

ProfEdOnDemand recently hosted the webinar “Observation Documentation for Proper Coding, Billing and Reimbursement” with seasoned management consultant Duane Abbey, Ph.D., who addressed best practices for physicians, nursing and hospital staff, and coding personnel to correctly document and code observation services and ensure compliance and proper reimbursement.

Duane’s comprehensive session covered all aspects of charge capture and proper billing issues related to the overall documentation process, as well as standards for assessment of both documentation and the documentation process for external audits such as those performed by RACs. To learn more about this tricky area of compliance.

To join the conference or see a replay, order a DVD or transcript, or read more

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