OBSERVATION SERVICES Sharon Walden, CPC Manager, Healthcare Services April 9, 2013

1. OBSERVATION SERVICES Sharon Walden, CPC Manager, Healthcare Services April 9, 2013

2. OVERVIEW • Definition of Observation Care • Determining Appropriate Level of Care • OIG and RAC Focus on Observation Services • Requirements for Observation Services • Billing for Observation Services • Reimbursement for Observation Services

3. DEFINITION – MEDICARE BENEFIT POLICY MANUALREVISION 137 12-30-10 • 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 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.

4. DEFINITION – CMS GUIDELINES • Observation status is commonly assigned to patients with unexpectedly prolonged recovery after surgery and to patients who present to the emergency department and who require a significant period of treatment or monitoring before a decision is made concerning their next placement. • Observation is an active treatment to determine if a patient’s condition is going to require that he or she be admitted as an inpatient or if it resolves itself so that the patient may be discharged • Observation services are those services furnished on hospital premises, including use of a bed and periodic monitoring by nursing or other staff, which are reasonable and necessary to evaluate an outpatient condition or determine the need for a possible inpatient admission.

5. DETERMINING THE LEVEL OF CARE • Evaluate the patient’s condition to determine whether the patient requires monitoring for a minimum of 8 hours • Determine whether patient’s condition can reasonably be expected to improve within 24 to 48 hours • Determine whether patient should be admitted within 48 hours

6. SOURCES OF OBSERVATION • Patient presents to emergency department, assessed and order written for observation care. (most common source) • Patient visits his/her personal physician and decision is made to send patient directly to the hospital for observation care (HCPCS codes G0379 and G0378 are used) – these patients do not go through the ER! • Patient has undergone an outpatient surgery procedure and does not meet discharge criteria at the end of the recovery period (usually 4 to 6 hours)

7. OBSERVATION SERVICES THAT SHOULD BEINPATIENT ADMISSIONS • Patients who failed intense outpatient therapy (e.g. asthma, nausea/vomiting) • Patients that come in emergently for procedures normally done as outpatient (e.g. cardiac catheterization) • Patients with multiple co-morbid conditions (outpatient workup would be too dangerous or risky) • Patient risk is the underlying determinant - the physician/hospital is expected to assess the risk, taking into account the site of service, and act in the patient’s best interest.

8. ADMISSION VERSUS OBSERVATION • Admission should be considered when a patient has an elevated Troponin, ST elevation, MI or dynamic S-T wave changes on EKG. • Observation should be considered when patient has no EKG or enzyme changes but the patient’s story suggests the possibility of acute cardiac ischemia. • Admission should be considered when the patient has symptoms that are not associated with food ingestion and include prolonged duration of symptoms, troubling physical findings or significant diagnostic data. • Observation should be considered when patient has symptoms associated with food ingestion, short duration of symptoms, no signs of infection and/or no pain that is not incapacitating.

9. OIG AND RAC FOCUS ON OBSERVATION SERVICES AND OTHER PRACTICES TO AVOID • Review Medicare payments for observation services provided during outpatient visits in hospitals. Assess whether, and to what extent, hospitals’ use of observation services affects the care Medicare beneficiaries receive and their ability to pay out‐of‐pocket expenses for health care services.

10. OIG 2012 WORK PLAN Observation services during outpatient visits To assess the appropriateness (or inappropriateness) of hospital services and their effect on Medicare beneficiaries’ out-of-pocket expenses, OIG will continue to review Medicare payments for observation services provided by hospital outpatient departments. OIG provides that observation care includes certain short-term services such as treatment, assessment, and reassessment that are furnished while a decision is being made regarding whether a patient will require further treatment as a hospital inpatient, or if the patient is able to be discharged from the hospital. (CMS’s Medicare Claims Processing Manual, Pub. 100-04, ch. 4, § 290.) Improper use of observation services, however, may subject beneficiaries to higher out-of-pocket expenses. (Part I, pp. 8-9)

11. OIG AND RAC FOCUS ON OBSERVATION SERVICES AND OTHER PRACTICES TO AVOID (CONTINUED) • Keeping patients on observation status, rather than admitting them • Admitting patients for “convenience” (e.g. live alone – no care giver) • Patients placed in observation without the full 4 to 6 hours recovery period • Reporting hours in a bed vs. medically necessary hours • Observation services that last longer than 48 hours • Standing orders for observation services • Reimbursement amounts inpatient vs. outpatient observation (e.g. dialysis)

12. OIG AND RAC FOCUS ON OBSERVATION SERVICES AND OTHER PRACTICES TO AVOID (Contnued) • Focus on readmissions – observation status is soaring! • Decrease in costs of providing care in outpatient status, reduced risk of denial of inpatient admission (less money vs. no money) • Increased cost to patients / decrease in patient satisfaction • Two studies – Health Affairs and Kaiser show a 25% and 32% increase, respectively, in observation care for the period 2007 to 2009.

13. DOCUMENTATION REQUIREMENTS FOR OBSERVATION SERVICES • Physician Documentation • Written order for observation to include date and time • Assessment of patient’s risk to determine benefit from observation care (must be explicitly documented by the physician) • Admission, Progress and Discharge notes - ALL timed, written and signed by the physician • Order must indicate either inpatient OR outpatient and the reason the patient must be assessed • The goal for care should be documented

14. COMMON ISSUES TO WATCH FOR • Documentation does not support admission • Did the order clearly indicate intent for observation or inpatient admission? • Insufficient Documentation • No orders and missing records • Documentation did not contain a valid physician’s signature • Incorrect Coding • Documentation did not support code billed • One or more of the key components failed to meet or exceed

15. DOCUMENTATION REQUIREMENTS FOR OBSERVATION SERVICES • Nursing Documentation • Observation time recorded in hourly increments • Documented time if patient is admitted as inpatient (physician documents this time when the order for admission is written) • Nursing documentation should be tied to physician orders • Includes conditions, updates to condition, and corresponding orders • Time ends when nurse documents that all clinical interventions have been completed (and corresponding physician order reinforces this time)

16. ADDITIONAL REQUIREMENTS/GUIDELINES • Orders and documentation must be clear, concise and convincing • Patient must be in the care of a physician during the period of observation, and documented in the medical record • Sample diagnosis acceptable for observation include (but are not limited to): • Anemia • Altered Mental Status • Back Pain • Chest Pain • CHF (Congestive Heart Failure) • Gastrointestinal Conditions • Hypertension • Shortness of Breath

17. GENERAL GUIDELINES AND TIPS FOR BILLING OBSERVATION SERVICES • APC 8002 (Level I Extended Assessment and Management Composite) • Includes a high level (Level 5) clinic visit or direct referral for observation care in conjunction with 8 or more hours of observation services • APC 8003 (Level II Extended Assessment and Management Composite) • Includes a high level (Level 4 or 5) emergency department visit or critical care services in conjunction with 8 or more hours of observation services • Beginning 1-1-09, this also includes high level (Level 5) Type B emergency department visits

18. GENERAL GUIDELINES AND TIPS FOR BILLING OBSERVATION SERVICES (Continued) • Observation Time: • Must be documented in medical record • Begins at clock time documented in patient record (ordered) • Ends when all clinical interventions have been completed • Number of units for G0378 must be equal to or exceed 8 hours

19. GENERAL GUIDELINES AND TIPS FOR BILLING OBSERVATION SERVICES (Continued) Additional Hospital Services: • In order to receive payment for additional services the claim must include one of the following services, in addition to the reported observation services: • Type A or B emergency department visit (CPT codes 99284 or 99285 or HCPCS G0384) OR • Clinic visit (CPT code 99205 or 99215) OR • Critical care (CPT code 99291) OR • Direct referral for observation care (HCPCS G0379, APC 0604); must be reported on same DOS as the date reported for observation services. • Procedures with status indicator “T” cannot be reported on the same day or day before observation care is provided.

20. GENERAL GUIDELINES AND TIPS FOR BILLING OBSERVATION SERVICES (Continued) • DirectReferral for Observation Care (1-1-08) • Reported using HCPCS G0379 (direct referral for observation services) • Criteria for payment under wither APC 8002 or APC 0604 include: • Both G0378 and G0379 with the same date of service • No service with a status indicator of “T” or “V” or Critical Care (APC 0617) is reported on the same day of service as HCPCS code G0379 • If either of the above criteria is not met, HCPCS G0379 will be assigned status indicator “N” and will be packaged into payment for other separately payable services provided in the same encounter.

21. GENERAL GUIDELINES AND TIPS FOR BILLING OBSERVATION SERVICES (Continued) • The patient must be in the care of a physician during the period of observation (documented in the medical record via admission, discharge and progress notes that are timed, written and signed by the physician). • The medical record should also include documentation that the physician explicitly assessed patient risk to determine that the patient would benefit from observation care.

22. GENERAL GUIDELINES AND TIPS FOR BILLING OBSERVATION SERVICES (Continued) • Only observation or direct referrals for observation billed on bill type 13X may be considered for a composite APC payment. • Status indicator code “N” should be used with G0378 and “Q3” with G0379 • Revenue codes assigned to observation services are as follows: • 0760 General Classification Category • 0762 Observation Room

23. REIMBURSEMENT FOR OBSERVATION SERVICES • Packaged Payment • Observation services is assigned a status indicator “N” signifying that the payment is always packaged. • Composite Payment • In certain cases when observation care is billed in conjunction with a Level 5 clinic visit, Level 4 or 5 Type A ED visit, Level 5 Type B ED visit, critical care services, or a direct referral as an integral part of a patient’s extended encounter of care, payment may be made for the entire extended care encounter through one of two composite APC’s when certain criteria are met.

24. REIMBURSEMENT FOR OBSERVATION SERVICES (Continued) • Payment for Direct Referral for Observation Services will be made either: • Separately, as a low level hospital clinic visit under APC 0604 OR • Packaged into the payment for Composite APC 8002 OR • Packaged into the payment for other separately payable services provided in the same encounter.

25. PAUSE FOR “VITAL SIGNS” CHECK…

26. REIMBURSEMENT FOR OBSERVATION SERVICES (Continued) • Composite APC Payment for Observation Services • Criteria for APC 8002 ($393.15) • 8 or more units of G0378 are billed • …on the same day as G0379, OR • …on the same day or the day after CPT codes 99205 or 99215 • AND -There is no service with status indicator “T” on the claim the same date of service or 1 day earlier than G0378

27. REIMBURSEMENT FOR OBSERVATION SERVICES (Continued) • Composite APC Payment for Observation Services • Criteria for APC 8003 ($720.64) • 8 or more units of G0378 are billed • …on the same date of service, OR • …the date of service after 99284, 99284,or G0384, or 99291 • AND -There is no service with status indicator “T” on the claim the same date of service or 1 day earlier than G0378

28. REIMBURSEMENT FOR OBSERVATION SERVICES (Continued) • Payment for Direct Referral for Observation Care (G0379) • Criteria for APC 0604 ($53.84) • G0378 are billed • …on the same day as G0379, OR • AND -There is no service with status indicator “T” or “V”, or critical care on the same date of service as code G0379 • Criteria for APC 8002 ($393.15) • 8 or more units of G0378 are billed • … on the same day as G0379 • AND -There is no service with status indicator “T” or “V”, or critical care on the same date of service as code G0379

29. ADDITIONAL BILLING AND REIMBURSEMENT CONSIDERATIONS FOR OBSERVATION • Services requiring extensive monitoring during observation care are “carved out” – for example if a patient has a colonoscopy during observation care, this type of service would interrupt the observation period due to the inherent level of monitoring associated with performing this procedure. The appropriate method for documenting this would be as follows: • Observation time ends (documented, timed and signed) when the procedure begins. • Once the procedure and appropriate level of recovery have been met, documentation must reflect that patient was placed back into observation care to include time and signature by physician.

30. ADDITIONAL BILLING AND REIMBURSEMENT CONSIDERATIONS FOR OBSERVATION (Continued) • Observation hours are calculated by adding the hours prior to the procedure, with the observation hours after patient was returned to observation care, to arrive at a total number of observation hours. The procedure is billed separately using the appropriate billing revenue and CPT or HCPCS codes.

31. CONDITION CODE 44 • Condition Code 44 • Used when an inpatient admission is changed to an outpatient status • Used in conjunction with UR review determination when patient was admitted as inpatient, but inpatient level of care does not meet the facility’s admission criteria

32. CONDITION CODE 44 (Continued) • How should the hospital report observation services when the patient's status is changed from inpatient to outpatient, using Condition Code 44? May the hospital report observation services from the beginning of the hospital outpatient encounter? • The use of Condition Code 44 pertains to the entire patient encounter, the patient's status, and the hospital bill type submitted. Medicare does not recognize a separate patient status called "observation“; all hospital patients are either inpatients (if they are admitted as inpatients on the order of a physician) or outpatients (registered by the hospital as outpatients). When Condition Code 44 is appropriately used, the hospital reports on the outpatient bill the services that were ordered and provided to the patient for the entire patient encounter. Reporting of individual HCPCS codes on an outpatient claim must be consistent with all applicable instructions and CMS guidance.

33. CONDITION CODE 44 (Continued) • However, in accordance with the general Medicare requirements for services furnished to beneficiaries and billed to Medicare, even in Condition Code 44 situations, the hospital cannot report hours of observation services using HCPCS code G0378 (Hospital observation service, per hour) for the time period during the hospital encounter prior to a physician's order for observation services. Medicare does not permit retroactive orders or the inference of physician orders. Like all hospital outpatient services, observation services must be ordered by a physician and the reporting requirements specific to observation services are discussed in detail in the Medicare Claims Processing Manual (Pub. 100-04), Chapter 4, Section 290.2.2. The clock time begins at the time that observation services are initiated in accordance with a physician's order.

34. CONDITION CODE 44 (Continued) • While hospitals may not report observation services under HCPCS code G0378 for the time period during the hospital encounter prior to a physician's order for observation services, in Condition Code 44 situations, as for all other hospital outpatient encounters, hospitals may include charges on the outpatient claim for the costs of all hospital resources utilized in the care of the patient during the entire encounter.

35. CONDITION CODE 44 (Continued) • The Hospital may change the patient’s status to outpatient and submit a claim, provided that all of the following are met: • Change in patient status from inpatient to outpatient is made prior to discharge • Hospital has not yet submitted a claim to Medicare for the inpatient admission • Physician agrees with the UR committee’s decision • Physician’s concurrence with UR Committee’s decision is documented in the patient’s medical record

36. OBSERVATION IN CRITICAL ACCESS HOSPITAL • Criteria and coverage for medically necessary observation – same as in prospective payment Hospital • Payment is based on cost • Observation must not be substituted for covered inpatient services or other outpatient services • Subject to 48 hour limit

37. ADDITIONAL REIMBURSEMENT DETAILS • When a physician orders that a patient receive observation care, the patient’s status is that of an outpatient. • All hospital observation services, regardless of the duration of the observation care, that are medically reasonable and necessary are covered by Medicare. Observation services are reported using HCPCS code G0378. • 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.

38. ADDITIONAL REIMBURSEMENT DETAILS (Continued) • In most circumstances, observation services are supportive and ancillary to the other separately payable services provided to a patient. In certain circumstances when observation care is billed in conjunction with a high level clinic visit (Level 5), high level Type A emergency department visit (Level 4 or 5), high level Type B emergency department visit (Level 5), critical care services, or direct referral for observation services as an integral part of a patient’s extended encounter of care, payment may be made for the entire extended care encounter through one of two composite APCs when certain criteria are met. • For information about billing and payment methodology for observation services in years prior to CY 2008, see Pub. 100-04, Medicare Claims Processing Manual, Chapter 4, §§290.3-290.4.

39. ADDITIONAL REIMBURSEMENT DETAILS (Continued) • For information about payment for extended assessment and management under composite APCs, see §290.5. • Payment for all reasonable and necessary observation services is packaged into the payments for other separately payable services provided to the patient in the same encounter. Observation services packaged through assignment of status indicator N are covered OPPS services. • Since the payment for these services is included in the APC payment for other separately payable services on the claim, hospitals must not bill Medicare beneficiaries directly for the packaged services

40. ADDITIONAL REIMBURSEMENT DETAILS (Continued) • Services Not Covered by Medicare and Notification to the Beneficiary • There is a two step process In making the determination whether an ABN can be used to shift liability to a beneficiary for the cost of non-covered items, or services related to an encounter that includes observation care: • First, the provider must decide whether the item or service meets either the definition of observation care or would be otherwise covered. If the item or service does not meet the definitional requirements of any Medicare-covered benefit under Part B, then the item or service is not covered by Medicare and an ABN is not required to shift the liability to the beneficiary. However, the provider may choose to provide voluntary notification for these items or services.

41. ADDITIONAL REIMBURSEMENT DETAILS (Continued) • Second, if the item or service meets the definition of observation services or would be otherwise covered, then the provider must decide whether the item or service is “reasonable and necessary” for the beneficiary on the occasion in question, or if the item or service exceeds any frequency limitation for the particular benefit or falls outside of a timeframe for receipt of a particular benefit. In these cases, the ABN would be used to shift the liability to the beneficiary (see Pub. 100-04, Medicare Claims Processing Manual; Chapter 30, “Financial Liability Protections”, Section 20, at http://www.cms.hhs.gov/manuals/downloads/clm104c30.pdf for information regarding Limitation On Liability (LOL) Under §1879 Where Medicare Claims Are Disallowed).

42. ADDITIONAL REIMBURSEMENT DETAILS (Continued) • If an ABN is not issued to the beneficiary, the provider may be held liable for the cost of the item or service, unless the provider/supplier is able to demonstrate that they did not know and could not have reasonably been expected to know that Medicare would not pay for the item or service.

43. PROTOCOL FOR OBSERVATION VS. INPATIENT ADMISSION Can condition be evaluated/treated / improved within 48 hours? Yes Observation is appropriate Yes No inpatient admission is appropriate Does condition require hospital treatment? No Alternate level of care is appropriate Additional time is needed to determine if inpatient admission is medically necessary. Observation is appropriate Yes Health Services Advisory Group, the Medicare Quality Improvement Organization for Arizona, under contract with CMS

44. CASE STUDIES

45. SAMPLE CASE STUDY # 1 • ED Colonoscopy • Mary presented to the Best Hospital ED at about 10:00 p.m. on Thursday evening. She was having problems with rectal bleeding, accompanied by nausea. The ED physician examined her and then called for a gastroenterologist to consult. The gastroenterology physician arrived and then proceeded to perform a colonoscopy. He determined that the bleeding was caused by internal hemorrhoids. Because conscious sedation was used, by the time Mary was fully recovered, it was midnight. The physician decided to place her in observation because there was no one at home to care for her. (Mary lives alone.) • Will Medicare pay (under APCs) for this observation? Why or Why Not? • Is this type of case going to be of any concern to the RAC?

46. SAMPLE CASE STUDY - # 2 • Chest Pain – Emergency Room Visit • Jane, a 70 year old patient, arrived at the emergency room complaining of gradual onset of chest pain over the last few hours. The physician ordered an EKG, which was normal, and cardiac enzymes, which showed an elevated Troponin level, and a chest X-ray which came back normal. By the time Jane returns to the ER, 8 hours have passed and the physician decides to write an order for outpatient observation to monitor Jane’s condition to see if it improves. • Does this case meet the criteria for observation care? • Should the patient have been admitted as an inpatient? • How would the OIG or a RAC auditor view this case?

47. SAMPLE CASE STUDY - # 3 • Admission from the Emergency Room • Joe presented in the emergency room today with abdominal and rectal pain, but in no distress. His physician ordered some lab tests and found mild elevation of liver enzymes and lipase. The attending physician diagnosed him with acute pancreatitis and decides to admit Joe as an inpatient, treated with IV fluids and given Demerol and Ativan. Joe was discharged the next day. • Does this case meet the criteria for inpatient admission? • Should this have been an observation case? • How would the OIG or a RAC auditor view this case?

48. THANK YOU FOR PARTICIPATING Desired Outcome: Prescription for more effective management of observation services

49. QUESTIONS AND ANSWERS

50. REFERENCES • Medicare Claims Processing Manual (Pub. 100-4; Chapter 4; Sections 290.2.2 - 290.5; Transmittal 1745; Change Request 6492, May 22, 2009 implemented July 6, 2009 for billing and payment instructions for outpatient observation services. • 20.6 - Outpatient Observation Services (Rev. 107, Issued: 05-22-09, Effective: 07-01-09, Implementation: 07-06-09) A. Outpatient Observation Services Defined • http://oig.hhs.gov/publications/workplan/2011/FY11_WorkPlan-All.pdf • https://www.cms.gov/manuals/downloads/clm104c04.pdf • http://www.cms.gov/apps/ama/license.asp?file=/HospitalOutpatientPPS/Downloads/CMS_1504_P_Medians_Files.zip