CMS Pub. 100-04, ch. 12, § 30.6.8

Inpatient Care Services (Including Admission and Discharge Services)

(Rev. 11842; Issued; 02-09-23 Effective:01-01-23; Implementation: 05-09-23)

A. 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.

A/B MACs (B) 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.

For information regarding hospital billing of observation services, see Chapter 4, §290.

B. Physician Billing for Observation Care Following Initiation of Observation Services

Starting in CY 2023, hospital inpatient and observation care by practitioners will be billed

using the same CPT codes, CPT codes 99221 through 99223, 99231 through 99233, and 99238

and 99239. (CPT 99234 through 99236 are already used for billing hospital inpatient or

observation care (including admission or discharge.) Although observation care codes (CPT

codes 99218 through 99220 and 99224 through 99226) are being deleted, practitioners will still

be able to furnish and bill for observation services using the revised Hospital Inpatient or

Observation Care Services code set. Where noted, the term “observation care code” applies to

Hospital Inpatient or Observation Care Services codes (CPT codes 99221-99223, 99231-

99239.)

The time counted toward the Hospital Inpatient or Observation Care codes is “per day.” “Per

day,” also referred to as “date of encounter,” means the “calendar date.” When using MDM or

time for code selection, a continuous service that spans the transition of 2 calendar dates is a

single service and is reported on one date, which is the date the encounter begins. If the service

is continuous, before and through midnight, all the time may be applied to the reported date of

the service (that is, the calendar date the encounter began).

A billing practitioner shall bill only one of the hospital inpatient or observation care codes for

an initial visit, a subsequent visit, or inpatient or observation care (including admission and

discharge), as appropriate, once per calendar date. The practitioner selects a code that reflects

all of the practitioner’s services provided during the date of the service. The definitions of

“initial visit” and “subsequent visit” for the purposes of billing observation care using the

Hospital Inpatient or Observation Care Services codes can be found in section 30.6.9.E. Note

also, that in some cases, practitioners may bill a prolonged code in addition to the Hospital

Inpatient or Observation Care Services base code; refer to section 30.6.9.F.)

Observation care codes are billed by the treating practitioner. All other practitioners 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 additional guidance for billing observation care using the Hospital Inpatient or Observation

Care Services code set, CPT codes 99221-99223, 99231-99239, refer to sections 30.6.9.1 and

30.6.9.2, where specified.

For additional guidance for billing prolonged Hospital Inpatient or Observation Care, refer to

section 30.6.9.15.

C. Documentation Requirements for Billing Hospital Inpatient or Observation 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 medically

appropriate history and/or 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.

D. Admission to Inpatient Status Following Observation Care

For the purposes of reporting an initial hospital inpatient or observation care service, a

transition from observation status to inpatient status does not constitute a new stay.

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 a subsequent

hospital inpatient or observation care code for the services provided on that date. The

physician may not bill the hospital inpatient or observation discharge management code (CPT

codes 99238-99239) 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.

Note that in some cases, practitioners may bill a prolonged code in addition to the Hospital

Inpatient or Observation Care Services base code; time spent by the same practitioner on the

same day for the same patient in multiple settings (or for a patient who transitions between

outpatient and inpatient status) may be counted toward the Hospital Inpatient or Observation

Care Services base code and, if applicable, a prolonged code. Refer to section 30.6.9.F.)

E. Hospital Observation Services During Global Surgical Period

The global surgical fee includes payment for hospital observation care services unless the

criteria for use of CPT modifiers “-24,” “-25,” or “-57” are met. A/B MACs (B) 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.