Observation Care

Published 01/10/2019

Observation care is a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients, or whether they can be discharged from the hospital.

Observation status is commonly assigned to patients who present to the emergency department and who then require a significant period of treatment or monitoring before a decision is made concerning their inpatient admission or discharge.

These services are covered only when provided by the order of a physician or another individual authorized by state licensure law and hospital staff bylaws to admit patients to the hospital or to order outpatient tests. These services must be deemed reasonable and necessary to be covered by Medicare. The CMS has stated: “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. In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours”.

Observation time begins at the clock time documented in the patient’s medical record, which coincides with the time the patient is placed in a bed for the purpose of initiating observation care in accordance with a physician’s order. Hospitals should round to the nearest hour.

Example 1: A patient who was placed in an observation bed at 3:28 p.m. according to the nurses’ notes would be documented as 3 p.m. where 3:34 p.m. would be 4 p.m. An admission at 3:03 p.m. according to the nurses’ notes and discharged to home at 9:45 p.m. should have a "7" placed in the units field of the reported observation HCPCS code. If a period of observation (HCPCS code G0378) spans more than one calendar day, all hours for the entire period of observation must be included on a single line and the date of service for that line is the date observation care began.

Example 2: A patient was admitted to observation on January 15, 2017, at 10 p.m. and was discharged at 12 p.m. on January 16, 2017. The date of service reported on the observation room revenue code line is January 15, 2017, the date observation services began.

Documentation must be legible, relevant and sufficient to justify the services billed and should include:

  • The attending physician's order including "clock time" for the observation service or "clock time" can be noted in the nursing admission notes/observation unit notes outlining the patient’s condition and treatment
  • Observation time which begins at the clock time documented in the patient’s medical record, and which coincides with the time the patient is placed in a bed for the purpose of initiating observation care in accordance with a physician’s order
  • The ending time for observation occurs either when the patient is discharged from the hospital or is admitted as an inpatient. The time when a patient is "discharged" from observation status is the clock time when all clinical or medical interventions have been completed, including any necessary follow-up care furnished by hospital staff and physicians that may take place after a physician has ordered that the patient be released or admitted as an inpatient. However, observation care does not include time spent by the patient in the hospital subsequent to the conclusion of therapeutic, clinical, or medical interventions, such as time spent waiting for transportation to go home.
  • The beneficiary is under the care of a physician during the period of observation as documented in the medical record by admission, discharge and appropriate progress notes
  • Risk stratification criteria (such as intensity of service and severity of illness) were used in considering potential benefits of observation care
  • The physician's admission/progress note which clearly indicates the patient's condition, signs and symptoms that necessitate the observation stay
  • Supporting ancillary reports such as laboratory and diagnostic test reports

Legible documentation in the medical record must clearly support the medical necessity and reasonableness of the observation services. The documentation should clearly state the method of assessment during observation and, if necessary, treatment in order to determine if the patient should be admitted or may be safely discharged.

Medicare Outpatient Observation Notice (MOON)
MOON is a standardized notice to inform Medicare beneficiaries (including health plan enrollees) that they are outpatients receiving observation services and are not inpatients of a hospital or critical access hospital (CAH).

MOON is mandated by the Federal Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act), passed on August 6, 2015. The NOTICE Act requires all hospitals and CAHs to provide written and oral notification under specified guidelines.

MOON instructions are included in Section 400 of Chapter 30 of the Medicare Claims Processing Manual. All hospitals and CAHs are required to provide the MOON, per CMS guidance, beginning no later than March 8, 2017.

Educational References and Resources: