Observation Status Basics Explained With Common Hospital Scenarios

A reader asked the question on understanding observation status:  After ten frustrating years in the outpatient world, I have finally seen the light and joined a hospitalist group. I need some serious 411 on coding and appreciate your witty and informative blog. I have no clue how to code obs patients. Please advise!

I'm glad you asked.  Understanding observation status is actually quite easy.   First of all, while insurance rules require the physician to write the order for inpatient or observation status, I don't think it should be up to us.  The rules are just too complicated for us to know.  But, since it is up to us, we need lots of help from people who actually know what they are doing.  

It takes years of experience to get a feeling on who is full admit and who is observation.  The utilization review people of the hospital carry around huge books with thousands of rules that Medicare and private insurance companies use to determine whether a patient meets inpatient criteria or not.

If they say the patient doesn't  meet inpatient criteria, the patient should be  observation status and they should let you know.  You have to make sure your CPT® coding (reference the AMA CPT 2018 Standard Edition on Amazon for definitive authority)  status as a physician matches the status of the patient by the hospital when the order is written.  For example, if the patient is observation status by the hospital, and you are billing inpatient codes,  your payment will get denied.  Make sure your billing is in line with the hospital's status.  Read this very carefully, because understanding the following few paragraphs will show you the light on hospital billing.  It really is very easy to understand.  You only have three possible scenarios to worry about.

  1. Inpatient status
  2. Observation status that crosses over the magic midnight hour
  3. Admit/Discharge Same Day (Does not cross over the magic midnight hour)
For #1  the patient is inpatient status.  You admit the patient using codes inpatient admission codes (99231, 99232 and 99233).  You discharge using 99238 (less than or equal to 30 minutes) or 99239 (greater than 30 minutes).  The in-between follow up visits are coded with the hospital follow up codes 99231, 99232 and 99233. 

For #2.  Observation status that crosses over a midnight hour.  That means if you admit a patient observation at 11:59 PM and discharge them 8 hours later at 8:00 am, they qualify for the admit observation codes  99218, 99219 or 99220. 

The following rules in coding and documentation apply:  99218 (low level obs) = 99221 (low level admit), 99219 (mid level obs) = 99222 (mid level admit), and  99220 (high level obs) = 99223 (high level admit).   So if you learn how to code  the three full admit codes, you just pick the equivalent level in the observation codes.  And the easiest part of all is that there is only one possible discharge code you can use:  observation discharge code 99217.  

What happens if a patient goes past two calendar days? What codes do you use for the middle days?  For example  lets say  you bring a patient into the hospital observation status on June 1st at 11:59 pm.  You can bill a (99218- 99220) for June 1st.  Lets say the following calendar day, June 2nd at 8 am, you are doing rounds and you determine the patient is not stable for discharge.  You can elect to keep them there under observation status (Medicare allows up to 48 hours of observation care) or you can do a full hospital admission (if they meet criteria determined by your utilization folks).   

If you elect to keep them observation, as the attending physician, on June 2nd, you would bill them the followup observation codes 99224, 99225 or 99226.    Since the patient is not technically admitted, you cannot bill the inpatient subsequent care codes (99231-99233).  On the following day, June 3rd, the third calendar day you would bill the observation discharge code 99217 when they are discharged.  If you decide to make the patient a full admission on June 2nd, technically, you can do another complete H&P and bill a new full admit code (99221-99223) on June 2nd, in addition to the June 1st observation admission code (99218-99220).  

However,  I rarely do this because I don't want to go through all that hassle.  I usually write an order to change the status to full admission starting from the time I write the order, leave my initial hospital admission code on June 1st as an initial observation code and then just use the inpatient hospital follow up codes on June 2nd and beyond.  Once a full admit, you use the inpatient followup codes until discharge, at which point you pick either the less than 30 minutes (99238) or greater than 30 minutes (99239).

#3  The admit/discharge same day (99234, 99235 or 99236).  This is even easier.  If you, the physician have your face-to-face admission and discharge evaluations on the same calendar day, at least eight hours apart,  regardless of whether you write an order for observation or inpatient, then these are the appropriate codes you should use.   Just like for the other observation codes,  you determine which level based on what your medically necessary documentation supports.  Once again, here's the easy part:  For coding purposes, a  99221=99218=99234, a 99222=99219=99235, and a 99223=99220=99236.  

That's why you only need to learn the rules for the admit codes 99221-99223 and you have all the others mastered as well.  Remember the 99234-99236 are used when the the physician's face-to-face admission and discharge documentation is performed  at least eight hours apart on the same calendar day.   If the time is not separated by at least eight hours, you may not get paid.  

One rare scenario that I run into is the occasional drug overdose on a ventilator that I admit using the critical care codes.  Sometimes the patient will improve very quickly, I can extubate and discharge on the same day.  In this case, I would keep my critical care code but I wouldn't bill a discharge code  because there is no discharge code that would suffice.  A critical care code will probably be audited on a patient that is discharged the same day, but, as long as your documentation supports critical care, you have done nothing wrong. 

One other thing to look out for.  As a hospitalist, you will get consulted to see surgical patients that are ASC (ambulatory surgery center) status.  These should be treated like observation status patients by medical physicians   These are usually overnight stays.  If you get consulted to see a patient in ASC or observation status,  Medicare no longer recognizes inpatient or outpatient consultation codes.   This is where it gets complicated.  If neither you nor any member of your physician group has seen the patient in the last three years, you should bill the outpatient new patient clinic codes (99201-99205) as your initial visit and the outpatient established patient codes (99211-99215) for all subsequent visits as a consultant.  However, if you or anyone in your group has seen the patient in the last three years,  Medicare does not allow you to use the new patient clinic codes for your initial visit and you must use the outpatient established visit codes for your initial visit.  If the patient is not Medicare, you can try to bill the outpatient consult codes (99241-99245) as your initial evaluation but whether it gets paid or not will depend on the rules of the patient's payer.   You can see much more in my free lectures on E/M coding for hospitalists in addition to a wealth of information in my resource area for hospitalists.


EM Pocket Reference Cards Using Marshfield Clinic Point Audit

Click image for high definition view

Print Friendly and PDF

15 Outbursts:

  1. Nicely done. Your compliance officer should be proud.

  2. AWESOME! Thank you so much for the detailed answers. You rock.

  3. Are you sure you can change observation to full admit, from the beginning? I don't think this is in line with CMS regulations since an admission order cannot be backdated.

  4. I checked with my coding people. When a change from full admit to observation is made retro actively, they document a "code 44" which involves some paper work on their end to indicated to CMS that the change has been made. I have no idea what a "code 44" is, but apparently it works as they say they haven't had a problem using this documentation to get it approved.


  5. There is now a crack down on going back and back dating the observation full admission issues. For now, we have been told not to back date an order, to just write the change to be initiated on the day the order is written.

  6. I have read that this "code 44" is not the complete answer to fixing the inpatient to observation care senerio. Have you heard this? Could you elaborate on what you know about billing a patient in the senerio: Patient is admitted from ER at 11:00 PM on day 1, night doc see's patient and bills inpatient initial care visit. Then at 10 AM (technically day 2)when the case managers come around, the patient is decided to not qualify for inpatient status, and is changed to OBS. Day doc does rounds and bills OBS code. How should that billing look? Can you bill a 99223 for day 1, and then just start billing OBS codes, and would it be a 99218, or an outpatient code?

  7. anony 10:03. In your example, I would change my admit code to a (99218-99220). When the claim gets submitted by our hospital, they will submit an observation claim, not an admission claim and hopefully Medicare will pay for the first calendar day. That's the code 44 issue. I have another post on that here.


    If the hospital doesn't submit an inpatient DRG, then my inpatient admit code will get denied without a doubt. The hospital status and the physician status must align.

  8. Thank you so much for your fast, and detailed response. I think you're blog is offically more reliable than any of the other people I've asked about this. It's been an issue at our hospital for almost a month now. Thank you!

  9. Hello Happy Hospitalist - We are struggling with the following situation: Doctor A sees pt at 11 am and bills Observation level 2 for pt with chest pain. Doctor B comes on night shift and sees pt has ruled out for ACS and discharges pt to home at 10 pm. This is admit/discharge same day to Observation service. How does Doctor A know what to bill since he/she doesn't know at time of admission whether pt will be discharged same calendar day or not by second provider, Doctor B?

  10. SKA. In same day admit discharge codes we always give credit to the admiter with the 99234-99236 codes. The discharger gets no credit but it should wash out over time. We simply change the admit code to an admit/discharge same day code

  11. Thanks for the feedback, Happy Hospitalist. This situation doesn't happen that often, but we were perplexed as to how to deal with it when it does.

  12. You didn't answer the oBV to IP question. You answered the IP to OBV issue with the code 44. If the patient is initially OBV and then goes to IP, you stated that you do not then do another H&P, you simply bill the original H&P as the "hospital admit," rather than OBV admit. You say that you write an order to change the status from the beginning. According to all guidelines I've read, you can not do this. You cannot backdate status. Once OBV services are provided, that cannot be then changed to IP. The code 44 applies to changing a pt to OBV from IP status. It doesn't work the other way around. I hope your charts don't get selected.

  13. anon. When an a patient is changed from obs to inpatient, I change my bill from obs to inpatient. I have checked with my hospital coding people and they confirmed that is correct.

    I don't write an order to change it from the beginning, anymore, as we have been told we can't do that, but because a DRG is collected, it makes no difference whether the DRG started on day 1 or day 2, the whole hospital stay gets bundled into a DRG, even if I don't write an order to back date the change.

  14. Correct, a DRG is the same no matter how long the stay. When a patient is in OBV, you would bill an initial OBV code, correct? 99218-99220. When they are IP, you would bill an IP admission code, 99221-99223, correct? When you say you change your bill from OBV to IP, does this not affect reimbursement?

  15. anon. You can do exactly as you said. I have never done it this way because I have never felt like doing the work of an entire new admission on day 2 when the switch is made, but you could do it and you should get paid. On day two when the obs to inpatient change is made, I bill an inpatient follow up code and change my original obs admission code to an inpatient admission code, since the whole thing will be bundled into an admission DRG by the hospital.


By Posting Here I Promise To Do Something Nice For Someone Today