CMS Pub. 100-04, ch. 4, § 290.5.3

Beginning January 1, 2016

(Rev. 3425, Issued: 12-18-15, Effective: 01-01-16, Implementation: 01-04-16)

Observation services are reported using HCPCS code G0378 (Hospital observation

service, per hour). Beginning January 1, 2008, HCPCS code G0378 for hourly

observation services is assigned status indicator N, signifying that its payment is always

packaged. No separate payment is made for observation services reported with HCPCS

code G0378, and APC 0339 is deleted as of January 1, 2008. In most circumstances,

observation services are supportive and ancillary to the other services provided to a

patient. Beginning January 1, 2016, in certain circumstances when observation services

are billed in conjunction with a clinic visit, Type A emergency department visit (Level 1

through 5), Type B emergency department visit (Level 1 through 5), critical care services,

or a direct referral as an integral part of a patient’s extended encounter of care,

comprehensive payment may be made for all services on the claim including, the entire

extended care encounter through comprehensive APC 8011 (Comprehensive Observation

Services) when certain criteria are met. For information about comprehensive APCs, see

§10.2.3 (Comprehensive APCs) of this chapter.

There is no limitation on diagnosis for payment of APC 8011; however, comprehensive

APC payment will not be made when observation services are reported in association

with a surgical procedure (T status procedure) or the hours of observation care reported

are less than 8. The I/OCE evaluates every claim received to determine if payment

through a comprehensive APC is appropriate. If payment through a comprehensive APC

is inappropriate, the I/OCE, in conjunction with the Pricer, determines the appropriate

status indicator, APC, and payment for every code on a claim.

All of the following requirements must be met in order for a hospital to receive a

comprehensive APC payment through the Comprehensive Observation Services APC

(APC 8011):

1. Observation Time

a. Observation time must be documented in the medical record.

b. Hospital billing for observation services begins at the clock time documented in

the patient’s medical record, which coincides with the time that observation

services are initiated in accordance with a physician’s order for observation

services.

c. A beneficiary's time receiving observation services (and hospital billing) ends

when all clinical or medical interventions have been completed, including follow-up care furnished by hospital staff and physicians that may take place after a

physician has ordered the patient be released or admitted as an inpatient.

d. The number of units reported with HCPCS code G0378 must equal or exceed 8

hours.

2. Additional Hospital Services

a. The claim for observation services must include one of the following services in

addition to the reported observation services. The additional services listed below

must have a line item date of service on the same day or the day before the date

reported for observation:

• A Type A or B emergency department visit (CPT codes 99281 through 99285 or

HCPCS codes G0380 through G0384); or

• A clinic visit (HCPCS code G0463); or

• Critical care (CPT code 99291); or

• Direct referral for observation care reported with HCPCS code G0379 (APC

5013) must be reported on the same date of service as the date reported for

observation services.

b. No procedure with a T status indicator or a J1 status indicator can be reported on

the claim.

3. Physician Evaluation

a. The beneficiary must be in the care of a physician during the period of

observation, as documented in the medical record by outpatient registration,

discharge, and other appropriate progress notes that are timed, written, and signed

by the physician.

b. The medical record must include documentation that the physician explicitly

assessed patient risk to determine that the beneficiary would benefit from

observation care.

Criteria 1 and 3 related to observation care beginning and ending time and physician

evaluation apply regardless of whether the hospital believes that the criteria will be met

for payment of the extended encounter through the Comprehensive Observation Services

APC (APC 8011).

Only visits, critical care and observation services that are billed on a 13X bill type may

be considered for a comprehensive APC payment through the Comprehensive

Observation Services APC (APC 8011).

Non-repetitive services provided on the same day as either direct referral for observation

care or observation services must be reported on the same claim because the OCE claim-by-claim logic cannot function properly unless all services related to the episode of

observation care, including hospital clinic visits, emergency department visits, critical

care services, and T status procedures, are reported on the same claim. Additional

guidance can be found in chapter 1, section 50.2.2 of this manual.

If a claim for services provided during an extended assessment and management

encounter including observation care does not meet all of the requirements listed above,

then the usual APC logic will apply to separately payable items and services on the

claim; the special logic for direct admission will apply, and payment for the observation

care will be packaged into payments for other separately payable services provided to the

beneficiary in the same encounter.