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Medical Necessity Denials
Most denials that Emergency Physicians will
encounter concern medically unnecessary admissions to a hospital. The American Medical Association (AMA) defines medical necessity as:
Health care services or products that a prudent
physician would provide to a patient for the purpose
of preventing, diagnosing or treating an illness,
injury, disease or its symptoms in a manner that is:
(a) in accordance with generally accepted standards
of medical practice; (b) clinically appropriate in
terms of type, frequency, extent, site and duration;
and (c) not primarily for the economic benefit of the
health plans and purchasers or for the convenience
of the patient, treating physician or other health care
provider.
9
When confronted with a denial for medical necessity, the Emergency Physician must be prepared
to write a strong letter of appeal by providing
clear, concise medical facts to support the services
and care provided while avoiding comments of
criticism of the health care plan or health care
system.
10,11,12
Begin by describing your role in the patient’s
care, for example, “I am a Board Certified Emergency Physician licensed to practice medicine in
[your] State, with XX years of experience treating
patients presenting with [the diagnosis].”
State the reaso n the patient required hospitalization using succinct statements that give support to your medical decision making and
evidence from your chart such as ancillary services results (laboratory, cardiology, radiology),
consultation notes, conversation with family
members, EMS, or significant others.
Describe in detail how the hospitalization was
imperative to prevent progression of the patient’s
illness, injury, or disability. What treatments did
you attempt that did/or did not provide the
patient relief from his or her presenting problem
or chief complaint; did the patient fail to respond
to intravenous antiemetics for his or her nausea
and vomiting; did the patient’s pain fail to
respond to analgesia despite repeated and escalating doses of medications? Was the patient compliant with home medication regimens; did he or
she have the necessary social network of support
to manage his or her illness safely in his or her
home environment; did the patient have the
necessary coping skills to manage the complexity
of his or her illness, disease or injury that would
assure no further deterioration, placing him or
her at increased risk to succumb to his or her
disease or condition?
Explain how the hospitalization will improve
the patient’s physical, mental, or developmental
effects of his or her underlying illness, disease,
or injury. Explain how previous hospitalizations
impacted on the patient’s ability to manage his
or her d isease, overcome obstacles of care, or
improve as a result of hospital-provided services. Identify failed treatment regimens and
what changed in the patient’s condition during
this visit... this visit that led to your decision to
admit. It is always beneficial to cite articles from
the literature that support your medical decision
making. Provide descriptions of psychological
and social factors that impacted your decision
to admit: was there sufficient support structures
in the home environment to provide surveillance of the patient, did the patient lack cognitive ability to provide his or her own care and
supervision, etc.
Ultimately, it is incumbent upon the Emergency Physician to be able to substantiate that the
hospitalization would reasonably benefit or prevent the deterioration of the patient’s illness,
injury, or disability, and that the outcome of
hospitalization would assist the patient in achieving his or her functional capacities that are appropriate for individuals of the same age to regularly
participate in activities of daily living.
Clearly, having a well-documented emergency
medical record during the patient’s initial
encounter will go a long way to avoiding a denial
letter. Having a departmental practice manager
review the details of your health care insurance
plan contracts listing the number of calendar days
for each level of appeal and external appeal is
imperative. Using an electronic program that
can track and trend reasons for denials by physician, diagnosis, and health care insurance plan
goes a long way to developing department policies
and procedures in conjunction with your hospital’s Utilization Review and Case Management
Department that will promote enhanced patient
care efforts, improve quality, reduce denials, and
preserve revenue.
Denials and Appeals
072
21:31:01
References
1. Fidelis Care New York
Provider Manual, Section
Thirteen, Provider Appeals,
V12.1-1/20/12.
2. Cigna HealthCare Reference
Guide, TriState Region,
801759g; 7/2011.
3. Request for Payment Review
and Appeal Form, Cigna
Corporation, 2011.
4. Appeal that Claim, Take an
Active Approach to the Claims
Revenue Cycle, AMA Practice
Management Center, Kristie L.
Martinez, CMM, CCS-P,
American Medical Association,
2011.
5. New York State, Department of
Financial Services, External
Appeals, 2012.
6. New York State Insurance Law,
Article 49.
7. Olaniyan O; Brown I; Williams
K. Managing Medical Necessity
and Notification Denials,
Healthcare Financial
Management, 63.8 (2009),
Aug;63(8);62–67.
8. The Medicare Appeals Process,
Five Levels to Protect
Providers, Physicians, and
Other Suppliers, Department
of Health and Human Services,
Centers for Medicare and
Medicaid Services, January
2011.
9. Statement of the American
Medical Association to the
Institute of Medicine’s
Committee on Determination
of Essential Health Benefits.
January 14, 2011. http://
iom.nationalacademies.org/~/
media/8D03963CA
EB24450947C1AEC0CA
ECD85.ashx (Accessed
February 20, 2016)
10. How to Prepare a Winning
RAC Appeal, Craneware
InSight Consulting, 2011.
11. Brown, R, Lagorio, N et al.
Mistaken Admission:
Establishing Medical Necessity
for Inpatient Procedures, CAN
Health Pro, Chicago, IL, March
2009.
12. Moore, K. Navigating the
Patient Appeals Process,
Fam Pract Manag. 2000, Oct;
7(9);43–46.
Robert H. Leviton
072
21:31:01
Subpart VD
Chapter
68
Financial – The Business of Observation Medicine
Ensuring Financial Viability
The Business Case for Observation Units
Christopher W. Baugh, MD, MBA FACEP
J. Stephen Bohan, MD, MS FACEP, FACP
Observation Use is Increasing
The use of observation services and presence of
observation units (OUs) have been rapidly accelerating over the past decade. A 2003 survey found
that about 19% of Emergency Departments (EDs)
had an OU, with another 12% planning to open
one.
1
Subsequent data from the 2007 National
Hospital Ambulatory Medical Care Survey
(NHAMCS) revealed that about 36% of EDs had
a dedicated OU.
2
An analysis of Medicare claims
data shows that observation hours increased from
23 million in 2006 to 36 million in 2009.
3
Finally,
another analysis of the NHAMCS data shows that
between 2001 and 2008, ED visits resulting in a
disposition to observation increased from 642,000
(0.60%) to 2,318,000 (1.87%).
4
The number of
observation stays per 1,000 Part B beneficiaries
almost doubled with an increase from 28 to 53
between 2006 and 2012.
5
Reasons behind Trend
Several forces have united to drive these increases
in observation use. In addition to the publication
of additional evidence supporting greater efficiency and lower costs with equivalent or better
clinical outcomes using pathway-driven observation care in dedicated units versus standard
inpatient admission,
6–8
other actions by the government and payers have encourag ed wider use
of observation in recent years. Investigations of
short-stay inpatient admissions by the Office of
the Inspector General (OIG) threaten fines and
bad publicity, audits by Recovery Audit Contractors (RAC) put past revenue at risk, and new
Medicare penalties for inpatient readmissions
encourage alternative management strategies.
9,10
In addition, the health care reform legislation of
2011 encourages the formation of Accountable
Care Organizations (ACOs), a model of care
driven by efficiency, not volume of health care
services.
11
In this model, the efficiency of
pathway-driven observation care is getting the
attention of hospital administrators looking for
opportunities to better manage patients eligible
for this care. (See Chapter 20 on ACOs.)
The Business Model of
Observation Care
SWOT Analysis
Many forces impact the strategic value of observation services, as illustrated in Figure 68.1. In
this figure, an analysis of Strengths, Weaknesses,
Opportunities and Threats (SWOT) illustrate the
internal and external forces that contribute to the
value of observation services. A SWOT analysis is
a strategic analytical tool used to better understand the benefits and challenges of a particular
business.
12
Stakeholder Analysis
Many stakeholders play a key role in the delivery
of observation care. These include the patients
and their advocates, physicians, nurses, hospital
administrators, and payers. Communicating the
value proposition of observation care to each of
these unique audiences is critical to gaining and
sustaining a supportive environment for the delivery of observation services.
For patients and their advocates, a robust
evidence base demonstrates that observation care
offers less time in the hospital with an equivalent
or better medical outcome for many conditions
(e.g., chest pain, transient ischemic attack, asthma,
congestive heart failure and many others).
6,8, 13–17
In addition, several studies have also shown that
patient satisfaction is higher with the observation
experience than with the standard inpatient
073
21:32:34
admission for equivalent illnesses.
18,19
Finally, an
observation stay often accomplishes the equivalent
evaluation that would usually take many outpatient visits to accomplish. For example, a patient
undergoing a transient ischemic attack evaluation
could have an MRI of the brain, an echocardiogram, laboratory studies, Neurology consultation
and physical therapy evaluation, all within 24 hours
before discharge to home. An equivalent outpatient evaluation could potentially take weeks of
coordination, placing a much higher burden on
the patient and risking noncompliance with the
recommended follow-up plan.
Although most observation patients are
covered by private insurance, Medicare’s policy
on the subject is very influential and closely monitored. Recently, Medicare patient advocates have
drawn attention to the potential for a high
amount of patient cost sharing for observation
care (a result of Centers for Medicare and Medicaid Services [CMS] categorizing observation as
outpatient care), especially for long stays. For
example, the rate of long observation admissions
(over 48 hours) has increased from 3% in 2006 to
6% in 2008.
20
Such long stays can potentially
generate higher out of pocket costs than an
Helpful
Harmful
Internal
External
· Strengths:
Established model of care
Large body of literature supporting use
Hospitals incentivized to support in current
climate
A "triple win" across the CMS three-part aim
of better care, better health and lower costs
Relies on Advanced Practice Providers, with
less input from physicians (looming physician
shortage)
· Weaknesses:
Vulnerable to misuse, underuse and overuse (i.e.,
inappropriate patient selection – use of
observation units for patients who should be
directly sent home from ED; care of
patients too sick/complicated for OU care, etc.)
Lack of stakeholder buy-in can mitigate
efficiency advantages (i.e., nurse blocking
admissions)
· Opportunities:
Increasing volume of observation patients
managed outside of an observation unit that
would be better managed in a dedicated unit
Creating new pathways of care, expanding
scope of illnesses managed in an observation
unit
Rise of ACOs puts emphasis on more
efficient patient management strategies
· Threats:
Unstable payment policies threaten model
sustainability (i.e., if CMS decides not to pay for
observation tomorrow, the entire model of
care is jeopardized)
Medicaid generally does not pay or pays very low
for observation services
Perception of patient cost shifting and patient
advocacy group litigation against CMS
Figure 68.1 SWOT analysis
Christopher W. Baugh and J. Stephen Bohan
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21:32:34
inpatient admission since Medicare Part B is used
for observation services, which typically requires
patients to pay a 20% coinsurance payment of the
negotiated Medicare rates in a fee-for-service
billing model.
21
In contrast, the 2012 Medicare
Part A deductible for 2016 is $1,288, which effectively caps the patient out-of-pocket costs for a
short-stay inpatient admission.
22
This is not an
annual deductible, so patients are at risk of paying
this for multiple hospitalizations if sufficient time
(60 days) passes in between illnesses.
23
However,
the 2016 CMS outpatient prospective payment
system final rule introduced a composite facility
payment that is anticipated to mitigate the potential for outlier patient costs. (See Chapter 63 on
comprehensive APCs of C-APCs.) In addition, as
opposed to an inpatient admission, time spent in
observation does not count toward the three-day
minimum for Medicare patien ts to qualify for
coverage of subsequent skilled-nursing facility
care. As a result of perceived unfair cost shifting,
in November of 2011 a patient advocacy group
filed a lawsuit against CMS.
24
Physicians are the providers choosing to use
observation services as an alternative to discharge
to home or inpatient admission. Emergency physicians are being challenged with an aging and
more complex patient population, and observation management provides a third disposition
option for patients that do not fit neatly into the
false dichotomy of home versus admission after
an initia l ED evaluation. Advanced Practice Pro-
viders, such as Physician Assistants and Nurse
Practitioners, often serve as a continuous presence in the OU and play a key role as part of the
care team. Observation creates another setting for
these providers to work, increasing demand for
their services and ensuring a favorable job market
persists despite increasing numbers of new
graduates.
Nurses caring for patients in an OU are usually the only providers with continuous patient
contact during that stay. As a result, it is key to
have nursing support for observation care, as they
are the caregivers that most patients will associate
with their observation experience. Since nurses
are continuously staffed in the OU, the costs of
nursing care are typically the most expensive
component of unit staffing.
Hospital administrators need to value OUs
in order to support the resources needed to
establish and sustain a unit. OU care that is
pathway driven has been shown to much more
efficiently manage patients.
7
As previously discussed, the OIG and RAC have been a constant
threat to audit, recover, and fine hospitals for the
inappropriate classification and billing of
patients as inpatients when observation care was
warranted.
8
Payers benefit for the efficiency created by
observation care, as outpatient payments are less
costly than inpatient payments. If payers did not
support observation services, physicians would
be forced back into a home versus discharge
decision, and many patients that would have
otherwise been manag ed at much lower cost in
an OU would then be forced into an inpatient
admission. Additionally, appropriate use of
observation care can also avoid costly readmissions. This is an area of heightened scrutiny, as
upcoming quality measures connecting readmissions to payments as well as new ACO global
payment models strongly penalize readmissions.
25
CMS and other payers will be watching
to make sure providers are not using observation
to circumvent penalties in cases where an inpatient level of care is needed. However, when
observation is most appropriate, the observation
setting can offer additional time and resources
for patients recen tly discharged with needs outside of the scope of an ED visit. Finally, as the use
of observation services increases, payers will
surely begin to focus more attention on the
patient eligibility for observation services versus
thealternativeofdischargehomewithamore
traditional outpatient follow-up plan.
Appropriate use of observation in a dedicated
space with well-designed protocols of care benefits all stakeholders because it is an efficient alternative to inpatient care. Efficiency translates into
lower costs, which is an important component of
any model of care in today’s health care environment. In addition, by avoiding inpatient admissions, the use of observation is building additional
inpatient capacity for patients needing that level
of care. This virtual capacity increases the value of
an observation admission, possibly by as much as
40% for capacity-constrained hospitals that regularly use ambulance diversion and turn down
transfer patients due to crowding.
26
The ED plays
a crucial role in keeping observation-eligible
patients out of inpatient beds and deserves fiscal
recognition by hospital leadership for their management of these patients.
Ensuring Financial Viability
073
21:32:34
References
1. Mace SE, Graff L, Mikhail M,
Ross M. A national survey of
observation units in the United
States. Am J Emerg Med 2003
Nov;21(7):529–533.
2. Wiler JL, Ross MA, Ginde AA.
National study of emergency
department observation
services. Acad Emerg Med 2011
Sep;18(9):959–965.
3. Medicare Payment Advisory
Committee. A Data Book:
Healthcare Spending and the
Medicare Program. June
2011:112.
4. Venkatesh AK, Geisler BP,
Gibson Chambers JJ, Baugh
CW, Bohan JS, Schuur JD. Use
of Observation Care in US
Emergency Departments,
2001 to 2008. PLoS ONE 2011
09/14;6(9):e24326.
5. MedPac (Medicare Payment
Advisory Commission). Report
to the Congress Medicare and
the Health Delivery System.
http://medpac.gov/documents/
reports/june-2015-report-tothe-congress-medicare-andthe-health-care-deliverysystem.pdf?sfvrsn=0 (Accessed
February 20, 2016)
6. Ross MA, Compton S, Medado
P, Fitzgerald M, Kilanowski P,
O’Neil BJ. An emergency
department diagnostic protocol
for patients with transient
ischemic attack: a randomized
controlled trial. Ann Emerg
Med 2007 Aug;50(2):109–119.
7. Baugh CW, Venkatesh AK,
Bohan JS. Emergency
department observation units:
A clinical and financial benefit
for hospitals. Health Care
Manage Rev 2011 Jan–Mar;
36(1):28–37.
8. Greenberg RA, Dudley NC,
Rittichier KK. A reduction in
hospitalization, length of stay,
and hospital charges for croup
with the institution of a
pediatric observation unit.
Am J Emerg Med 2006 Nov;
24(7):818–821.
9. Bissey B. Observation, admission,
and RAC - The next perfect
storm? IMA Consulting 2008;12.
10. OIG reports reveal Medicare
overpayments at several
hospitals. Healthcare Finance
News. Available at:
www.healthcarefinancenews
.com/news/recent-oig-reportsreveal-medicare-overpayments
-several-hospitals. Accessed
February 4, 2016
11. H.R.3590. Patient Protection
and Affordable Care Act. 2010:
Section 1302.
12. Bradford RD, Duncan J, Tarcy
B. Simplified Strategic Planning:
A No-Nonsense Guide for Busy
People Who Want Results Fast!
Chandler House Press.
13. Peacock WF, 4th, Young J,
Collins S, Diercks D, Emerman C.
Heart failure observation units:
optimizing care. Ann Emerg Med
2006 Jan;47(1):22–33.
14. Jagminas L, Partridge R.
A comparison of emergency
department versus inhospital
chest pain observation units.
Am J Emerg Med 2005 Mar;
23(2):111–113.
15. Storrow AB, Collins SP, Lyons
MS, Wagoner LE, Gibler WB,
Lindsell CJ. Emergency
department observation of
heart failure: preliminary
analysis of safety and cost.
Congest Heart Fail 2005
Mar–Apr;11(2):68–72.
16. Shen WK, Decker WW, Smars
PA, Goyal DG, Walker AE,
Hodge DO, et al. Syncope
Evaluation in the Emergency
Department Study (SEEDS):
a multidisciplinary approach to
syncope management.
Circulation 2004 Dec 14;
110(24):3636–3645.
17. Ross MA, Compton S,
Richardson D, Jones R, Nittis
T, Wilson A. The use and
effectiveness of an emergency
department observation unit
for elderly patients. Ann Emerg
Med 2003 May;41(5):668–677.
18. Rydman RJ, Zalenski RJ,
Roberts RR, Albrecht GA,
Misiewicz VM, Kampe LM,
et al. Patient satisfaction with
an emergency department
chest pain observation unit.
Ann Emerg Med 1997 Jan;
29(1):109–115.
19. Rydman RJ, Roberts RR,
Albrecht GL, Zalenski RJ,
McDermott M. Patient
satisfaction with an emergency
department asthma
observation unit. Acad Emerg
Med 1999 Mar;6(3):178–183.
20. Tavenner M. Centers for
Medicare & Medicaid Services’
letter to American Hospital
Association on extended
observation services 2010 July
7th; Letter from CMS Acting
Administrator and Chief
Operating Office Marilyn
Tavenner to AHA President
Richard Umbdenstock.
21. Medicare.gov – Your Medicare
Coverage. Available at:
www.medicare.gov/coverage/
html Accessed February 4, 2016.
22. Medicare: FAQs. Available at:
https://questions.medicare.gov/.
Accessed February 4, 2016.
23. Centers for Medicare &
Medicaid Services (CMS).
Medicare Benefit Policy Manual:
Chapter 3
– Duration of Covered
Inpatient Services. 2003.
24. The Advisory Board Company.
Patients sue HHS over hospital
’observation status’–The
Advisory Board Daily Briefing.
2011. Available at:
www.advisory.com/DailyBriefing/2011/11/04/Patientssue-HHS-over-observationstatus-rules. Accessed February
4, 2016.
25. Berenson RA, Paulus RA,
Kalman NS. Medicare’s
Readmissions-Reduction
Program — A positive
alternative. N Engl J Med 2012,
March 28; 2012/04.
26. Baugh CW, Bohan JS.
Estimating observation unit
profitability with options
modeling. Acad Emerg Med
2008;15(5):445–452.
Christopher W. Baugh and J. Stephen Bohan
073
21:32:34
Subpart VD
Chapter
69
Financial – The Business of Observation Medicine
Observation Services in the
Eyes of the Payers
Sandra Sieck, RN, MBA
Reimbursement for observation unit (OU) services has been evolving over the last several years.
Hospital facilities must stay abreast of the ever
changing criteria for this level of care and the
factors that drive optimal reimbursement. Facilities and providers will deal with multiple payers
on the commercial side as well as Medicare and
Medicaid. Rather than play a passive or reactive
role, facilities must take an active stance toward
OU reimbursements and adhere to the rules
under which such reimbursement is defined.
Medical Necessity Guidelines
Scientifically sound medical necessity criteria
form the foundation for determining appropriate level of care. Many payers will use nationally
known criteria for considering OU as an appropriate level of care for payment. InterQual or
Milliman & Robertson are nationally known
sets of criteria that can assist case managers
and payers to more specifically define a cceptable standards for considering when a patient
meets criteria for an acute level of care, ICU
status, telemetry, or observation.
1
The Centers
for Medicare and Medicaid Services (CMS)
Guidance does not require RAC (Recovery
Audit Contractor) and MAC (Medicare Administrative Contractor) auditors to use o nly these
guidelines for d etermining medical necessity.
Auditors can use their clinical judgment, CMS
coverage guidelines, coding guidelines, interventional guidelines, or nationally accepted community standards.
The disease states or medical conditions that
are appropriate for observation status are no
longer limited as they once were in the Medicare
world several years ago. The only current requirement is that the condition meets criteria for a
short stay as an outpatient with a reasonable
expectation that the condition can be sufficien tly
improved with focused treatment as an outpatient
or an expeditious determination made for inpatient care within 24 – 48 hours.
Payment and Coding
CMS has led the way in observation medicine
reimbursement.
2
CMS has pushed for more outpatient services where medically appropriate and
has instituted review of inappropriate one-day
hospital admissions. Medicare patients make up
a large segment of the OU patient population. In
the CMS model, the rules are very specific for
what criteria define an appropriate OU stay and
billing procedure. CMS is quite strict in requiring
facilities to adhere to its guidelines, so it is crucial
that providers and coders understand and follow
the guidelines in order to secure reimbursement.
3
CMS uses the Outpatient Prospective Payment
System (OPPS) for coverage of OU care. The OU
is considered an outpatient service by CMS. Revenue Code 0762 is appropriate and place of service code is 21 for outpatient. CMS reimburses for
OU care under the composite Ambulatory Payment Classification (APC) codes, 8002 and 8003,
for extended assessment and management (see
Table 69.1).
4
The appropriate APC code depends
on the concomitant utilization of a clinic visit,
emergency department (ED) visit, or critical care
visit occurred on the day of or day before the OU
status, or if the OU stay resulted as a direct referral from a physician. APC 8003 is a composite
payment that covers both the ED visit and OU
stay.
The degree of supervision for diagnostic and
therapeutic services in the outpatient setting is
important for OU reimbursement. CMS requires
direct supervision by a physician or nonphysician
provider at the initiation of OU care. Direct
supervision requires that the provider is immediately available if needed. However, this does not
require continuous physical presence in the room.
Once the physician has determined that the
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21:32:19
patient is stable, general supervision is sufficient.
General supervision means the services are
rendered under the provider’s direction, again
without the need for continual physical presence.
CMS APC 8002–8003 requires at least 8 hours
to be provided in observation, up to 24 unit
hours. While a stay may last up to 48 hours, no
further reimbursement is made for any hours
spent after 24 hours. Procedures and tests performed during the OU stay can be billed in addition to the APC codes but no T status procedure
(surgical procedure) can be performed.
Additionally, the OU records must show pristine documentation of the physician orders, risk
stratification used (nationally accepted standards
or individual hospital guidelines), and hourly care
provided (see Table 69.2). Since OU statu s can be
provided anywhere in the facility physically,
orders must state, “Place in Observation” rather
than “Admit to Observation.” This will avoid
confusion regarding whether the patient has been
admitted to acute level of care or truly observation
status. The Medicare Outpatient Code Editor
(OCE) is the final determinant of what services
will be covered under the APC composite.
What if a patient’s clinical condition changes?
Condition 44 occurs when a patient’s status
changes. A patient may start in observati on status
and later be admitted to inpatient status if medically necessary. In this case, the OU time is incorporated into the hospital stay. For Medicare, the
appropriate diagnosis-related group (DRG) will
be reimbursed and no separate OU billing is
allowed. Conversely, at times a patient may
change from inpatient to outpatient observation
status. CMS does not allow a retrospective admit
to OU; OU can only be billed from the exact time
of transfer to OU status. Condition 44 requires
billing either as an inpatient or outpatient; it does
not recognize OU as a third option. OU is considered an outpatient encounter. The hospital
cannot change the claim from inpatient to outpatient without involving the UR Committee with
physician concurrence. A facility cannot retrospectively bill for G0378 (OU) for the time the
patient was an inpatient. G0378 can only be billed
upon the time of arrival to observation status.
However, facilities may bill for charges for all
hospital resources used during the entire patient
encounter.
9
Payers Focus on Double Dipping
Payers are well aware of the practice of double
dipping in billing. The Medicare Claims Processing Manual (Pub 100–4) does not allow OU time
billing for those services provided in OU that
would otherwise require active monitoring. Such
services include colonoscopy, chemotherapy,
administration of certain drugs, etc. The hospital
must determine if a procedure or intervention
would normally require monitoring. If so,
G0378 cannot be billed during the times these
services are administered.
Table 69.1 Medicare Coding Issues for Observation Status
5
APC Definition and Requirements Payment (2012)
8002 – Level I
Coding for a clinic visit (99205 or 99215) the same day or day prior
to OU admit is required. The associated evaluation and
management (E&M) code must be billed with modifier 25 and on
the same claim form as G0378.
A minimum of 8 units of observation services (G0378) must
be coded.
No procedures with a T code status indicator can be billed.
$393.15
6
8003 – Level II
A Type A ED visit (99284 or 99285), G0384 level 5 Type B ED visit, or
critical care (99291) code on the day of or day before admit to OU is
required. The associated E&M code must be billed with modifier
25 and on the same claim form as G0378.
A minimum of 8 units of observation services (G0378) must
be coded.
No procedures with a T code status indicator can be billed.
$720.64
7
Sandra Sieck
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21:32:19
Physician Considerations
Physicians caring for patients in the OU have a
setofappropriatebillingcodesbasedonthe
patient’s length of stay in the OU, severity/
complexity of the E &M services, and discharge
management (see Table 69.3). Physicians (i.e.,
specialty consultants) who provide services
other than observation are to bill the appropriateoutpatientcodefortheservice.
The commercial payers often follow Medicare
guidelines for reimbursable OU coding, however,
certain payers will define their own criteria for
OU level of care and payment. Facilities and providers should engage payers in defining the details
of such criteria in contracts, if possible, or at least
become aware of the guidelines that affiliated
payers use. Physicians’ documentation on admission notes, progress notes, orders, and treatments
are most important when reviewing care for medical necessity.
Payment Denial Issues
In an attempt to eliminate waste, Medicare has
targeted several situations that have represented
payment error and under/overcoding in the past.
These areas include one-day hospital stays, 7-day
readmits, 3-day nursing home admits, coding of
complications and comorbidities, and problematic diagnoses (heart failure, shock, sepsis, stroke
Table 69.2 Medicare Criteria for Medical Necessity of
Observation Status
8
Criteria Specific Documentation
Physician order Order to place patient in
observation status
Specific codes Ops code G0378 for the
observation level
Visit code:
G0384 ED (Level 5 Type B ED)
or
99284 or 99285 (Type A ED) or
99205 or 99215 (Clinic visit)
or
99291 (Critical Care visit) or
G0379 for direct referral
to OU
E&M code with modifier
25 if same Date of Service
(DOS) as G0378
Time units
Minimum of 8 hours up
to 24 hour maximum for
billing (can stay up to
48 hours but no
additional
reimbursement beyond
24 hours)
Time must be clocked
Does not include time
out of OU for obtaining
any tests
Documentation
of care provided
Must be included in OU
records by MD or
nonphysician practitioner:
Admission note
Progress notes for
each hour
All notes must be timed
and signed
Discharge instructions
Risk stratification Physician must document in
records that a risk
stratification assessment was
made that showed OU status
as appropriate
Additional
services
provided
Any additional tests or
treatments can be coded and
must be documented
Table 69.3 Physician Coding for OU Services
10
Service Code Description
OU sameday admit/
discharge
99234
99235
99236
E&M for OU care with
same date of admit and
discharge with
Low severity
Moderate severity
High severity
Initial OU
care
99218
99219
99220
Initial E&M for OU care
per day, with duration of
visit:
~30 minutes
~50 minutes
~70 minutes
Subsequent
OU care
99224
99225
99226
Subsequent E&M for OU
care per day, with
duration of service
~15 minutes
~25 minutes
~35 minutes
Discharge 99217 OU discharge
management when
discharge is not same
day as admit
Observation Services in the Eyes of the Payers
074
21:32:19
with infarct, gastroenteritis, complex pneumonia,
etc.). Medicare uses its own hospital data and
provides results quarterly in the Program for
Evaluating Payment Patterns Electronic Report
(PEPPER). Hospitals can use this information to
assess the efficiencies of their programs and find
areas for improvement.
Areas with a high presence of managed care
may present additional challenges for providers
and facilities. Many managed care payers have
prior authorization requirements for admissions
or require authorization for level of care at the
time of admission. Care managers within the
facility and physicians in the OU should have
access to such criteria and work with payers on
the authorization process, preferably concurrent
to the admission.
A payer may retrospectively review an OU stay
for coverage. Facilities should submit detailed
records for such post-service authorization reviews
to cover observation status. A letter of support that
explains the criteria a patient meets is important, but
additional record documentation is especially
important. All clinical information, orders, progress
notes, admit note, clock time in and out, supporting
diagnostic and ancillarytests, discharge note, nurses’
notes, and delineation of the criteria used to verify
thatthe patientmet guidelines for an OU stay should
be submitted. Denials by payers for observation
status can be costly to the organization if full payment is denied. Additionally, the cost and timeconsuming efforts of the appeal process also add to
the hospital’s cost. If the regulatory statutes or
payers’ rules allow for an appeal of a denied OU stay,
it is worthwhile to provide key clinical information
regarding the patient’s condition, status, criteria met
forOU,andproperadmissioncriteriaforsuch
coverage to the respective payer. An appeal request
should detail specifically why the facility believes OU
stay was medically necessary and then include the
medical record documentation that supports this
justification as well as for all services provided.
Reimbursement rates for OU services are an
important consideration for facility viability.
Contracted rates for OU services may be agreed
upon in advance between payers and facilities or
providers in certain geographies. These contracts
are common in areas of high-managed care penetration. The contractual language should detail
the specific criteria for admission to and reimbursement for observation status. As contractual
arrangements between hospitals and payers
become more specific, it behooves the facility to
negotiate acceptable definitions for what constitutes observation level care, which specific criteria
or guidelines will become the arbitrator for OU,
and how these services will be reimbursed. The
facility should consider actuarial analysis of prior
observation practice patterns, ancillary utilization
rates, and status costs prior to negotiating fair
rates with contracting payers.
Future Directions
As the cost of health care continues to increase and
outpace the general inflation, payers are challenging the current payment model to provide built-in
guarantees of quality and value. The era of automatic reimbursement in a fee-for-service mode is
quickly becoming a historic past. Unbridled reimbursement of submitted charges has fostered, at
least in part, the runaway health care costs of the
past decades. The evolution of managed care has
tempered runaway costs to some extent, however,
providers complain that the capitated, discounted,
and DRG models are unfair in the other direction.
Future health care reimbursement will pay for
evidence-based, medically necessary, and efficient
services that will afford the patient optimal health
for the underlying medical condition. Medicare has
been the frontrunner in the search for a payment
model that rewards quality and value rather than
quantity of service.
11
Beginning in 2013, Medicare
will enact a new Value Based Performance (VBP)
program for hospital payments. If this program is
perceived as successful in reimbursement that
rewards quality care, it is likely to extend to other
treatment venues as well, including OU.
References
1. InterQual Level of Care
Criteria 2011, McKesson
Health Solutions, LLC.
2. Medicare Benefit Policy
Manual. Chapter 6 – Hospital
Services Covered Under Part
B. 20.6- Outpatient
Observation Services.
(Rev. 152, 12–29-1)
www.cms.gov/manuals/
Downloads/bp102c06.pdf
(Accessed February 4, 2016).
3. Pub 100-04 Medicare Claims
Processing Manual. Chapter 4.
Section 290. Outpatient
Observation Services.
www.cms.gov/manuals/
downloads/clm104c04.pdf
(Accessed February 4, 2016).
Sandra Sieck
074
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