Observation services

Applies to

All plans

Coverage of observation services

Observation services are covered only when:

Provided by the order of a physician or another individual authorized by State licensure and hospital staff bylaws to admit patients to the hospital or to order outpatient tests, or
Clinical data presented by the hospital doesn’t support inpatient status.

Additionally, observation services must be patient-specific and not part of a standard facility protocol for a given diagnosis or service. Observation services must also be medically necessary.

Length of observation services

The observation stay must span a minimum of 8 hours. In most cases, the decision to either discharge a patient from the hospital when the reason for observation care is resolved or to admit the patient as 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.

We won’t reimburse observation services exceeding 72 hours.

Reporting observation hours

Observation time starts at the clock time documented in the member's medical record, which coincides with the time a physician’s order initiated observation care. Hospitals should round to the nearest hour, within the72-hour limit.

Inpatient admission following observation stay

DRG-based or inpatient case rate-based reimbursement: All related observation services occurring within three days of the date of admission are inclusive to case rate or DRG.
Percent-of-charge payment methodology: Observation services occurring on the same date as an inpatient admission (before midnight) will be inclusive to inpatient reimbursement. The observation bed charge on the same day as the inpatient admission isn’t separately reimbursed. The observation bed charge prior to the date of admission is separately reimbursed.
Inpatient per-diem payment methodology: Any observation services provided within one day of inpatient admission would be separately reimbursed. The observation bed charge on the same day as the inpatient admission isn’t separately reimbursed.
Fee schedule or per hour payment methodology: Observation services occurring on the same date as an inpatient admission (before midnight) will be inclusive to inpatient reimbursement. The observation bed charge on the same day as the inpatient admission isn’t separately reimbursed. The observation bed charge prior to the date of admission may be separately reimbursed.

We require notification when an observation stay converts to an inpatient admission. See the links below for direction on inpatient admission:

Observation services following emergency department services or outpatient services

Emergency department services prior to an observation stay are inclusive to the observation services. The emergency department services won’t be reimbursed separately.
Observation associated with outpatient or surgical services are inclusive to routine recovery services. These services aren’t separately reimbursed.

Commercial and individual billing and coding

Observation services are submitted with type of bill 13X or 85X.

All hospitals are required to report observation charges under 0760 (General classification category) or 0762 (Observation room).

All related services performed while the member receives observation services are reported using the applicable revenue codes and HCPCS codes.

Reimbursement methodology may determine if observation stay services are separately reimbursed. Services reimbursed through APC payment methodology would follow the applicable guidelines associated with the applied APC or composite APC reimbursement criteria.

G0378: Hospital observation service, per hour (72-unit limit)

Service should be coded on one claim line with total units of observation for stay

G0379: Direct admission of patient for hospital observation care

G0379 should only be reported when observation services are the result of a direct referral for observation care without an associated emergency room visit, hospital outpatient clinic visits, or critical care service on the day of initiation of services.
Hospitals should only report G0379 when a patient is referred directly to observation care after being seen by a physician in the community.

Medicare and Medicaid billing and coding

Also see: Medicare observation/Condition Code 44

In addition to the observation service guidelines above, reference information for Medicare and Medicaid can be found in Section 20.6, Chapter 6, of the Medicare Benefit Policy Manual. MDHHS references CMS guidelines for billing and coding purposes.

All hospitals are required under Medicare billing rules to report observation charges under 0760 (General classification category) or 0762 (Observation room).
Ancillary services performed while the member receives observation services are reported using the applicable revenue codes and HCPCS codes. See Section 290.2. 1, Chapter 4, of the Medicare Claims Processing Manual.

G0378: No separate payment is made for observation services reported with G0378 and APC 0339. In most circumstances, observation services are ancillary to the other services provided to a patient. Reimbursement is subject to APC payment methodology.

Composite APC payment will not be made when observation services are reported in association with a surgical procedure (T status procedure) or the hours of observation care reported are less than 8. See Section 290.5.1, Chapter 4, of the Medicare Claims Processing Manual.

G0379: Should only be reported when observation services are the result of a direct referral for observation care without an associated emergency room visit, hospital outpatient clinic visits or critical care service on the day of initiation of services.

Hospitals should only report G0379 when a patient is referred directly to observation care after being seen by a physician in the community.
Payment may be made separately as a low-level hospital clinic visit under appropriate APC or composite APC based on applicable guidelines. Refer to CMS and APC related guidelines for further detail.

Only direct referral for observation services billed on bill type 13X may be considered for composite APC payment. See Section 290.5.2, Chapter 4, of the Medicare Claims Processing Manual.

Reporting hours of observation

Services not covered as observation services by Medicare

Providers must determine whether an item or service either meets (1) the definition of observation care or would be otherwise covered and/or (2) is 'reasonable and necessary' for the treatment the member is receiving or if the item or service exceeds any frequency limitation or falls outside of timeframe for receipt of a particular benefit.

If the item isn’t covered under Part B or if the service isn’t reasonable and/or necessary, including exceeding frequency or benefit limitations, then a notice of non-coverage must be provided to Part C (Medicare Advantage) members. Learn more about this requirement for notices of non-coverage.

Coverage for medications during observation

Generally only medications related to observation services are covered under a member's Medicare Part C benefit. Maintenance medications not part of an observation stay are covered under the member's Part D benefit.

Note: Medicare allows members to bring their maintenance medications if allowed by hospital policy.