Knowledge Base Article

Another article in this week’s Wednesday@One newsletter reviews the different definitions of the word “confusion.” There are also numerous definitions for the verb “observe” but let’s concentrate on two of these definitions. One definition of “observe” is “to watch, view, or note for a scientific, official, or other specialpurpose.” This definition fits the services provided to a patient in a hospital stay for “observation services” – the patient is being watched for a special purpose. But observe also means to “obey or comply” as providers of services to Medicare patients must “observe” Medicare rules and regulations. In fact, these providers must “observe the rules of observation services.”

Since there was not a lot of MAC Medical Review activity this month, let’s look beyond the MAC reviews to a finding reported in the OIG compliance review of Northwestern Memorial Hospital released in March 2015. The OIG reported that the hospital incorrectly billed Medicare for observation hours resulting in incorrect outlier payments. In this review, the overpayment amount for observation services was less than $4,000 but findings from this review were extrapolated expanding overpayments of around $272,000 to a refund amount of over $6M. Other OIG compliance reviews over the years have identified cases of over $20,000 in outlier overpayments related to incorrect reporting of observation hours.

The most common reason for over-reporting observation hours is the inclusion of observation time for services that were part of another Part B service including postoperative monitoring or standard recovery care. According to the Medicare Claims Processing Manual, Chapter 4, Section 290.2.2, observation services should not be billed:

• For services that are part of another Part B service, such as postoperative monitoring during a standard recovery period (e.g., 4-6 hours);
• For routine preparation services furnished prior to diagnostic testing and recovery afterwards; or
• Concurrently with diagnostic or therapeutic services for which active monitoring is a part of the procedure.

Medicare allows hospitals the discretion of determining the most appropriate way to account for concurrent time. Hospitals may deduct the actual time spent in procedures with active monitoring or use an average length of time for the interrupting service.

Another problem identified by this and previous OIG reviews was including inappropriate time before or after observation services.

• Observation time begins at the clock time documented in the patient’s medical record, which coincides with the time that observation care is initiated in accordance with a physician’s order. You cannot bill for observation hours prior to the time of the physician’s order for observation. Keep this in mind especially when using Condition Code 44 to convert an inappropriate inpatient admission to an outpatient stay. The entire stay, from the time of the inpatient admission order, becomes outpatient status, but if the order is to “change to outpatient with observation services”, observation only begins at the time of that order.
• Observation time ends when all medically necessary services related to observation care are completed. This could be before, at the time of, or after the time of the discharge order. The key here is when medically necessary services are complete. Consider if the patient is still receiving medical care related to the observation services. Once medical care/assessment is complete, observation services are complete and the billing of observation hours should stop at that point.

There were also issues with physician’s orders – either missing orders or untimely orders. There must be a signed order for observation services – section 290.1 of Chapter 4 of the Medicare Claims Processing manual states, “Observation 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 services.” In the OIG review that noted untimely orders, one order was signed after the observation care was no longer necessary and the other order was signed when the observation services were nearly complete. Observation orders must be medically necessary at the time they are written, which leads nicely into the final issue.

The final observation issue noted in the OIG review - the patient’s condition did not warrant observation services. Providers must consider the medical necessity of observation services just like they consider the medical necessity of all procedures and services. This applies to an initial decision for observation services and the continuation of observation services.

“Observation care is a well-defined set of specific, clinically appropriate services, which include ongoing short term treatment, assessment, and reassessment, that are furnished while a decision is being 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. … 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.”

Observation is short term treatment or assessment while the physician is deciding whether the patient needs to be admitted as an inpatient or is medically stable enough to send home. Once this is decided and short term treatments and assessments are complete, observation services are no longer medically necessary.

To be compliant with the reporting of observation services, providers must consider - is observation reasonable and necessary, is there a physician’s order, and is observation time being counted correctly? As with all things Medicare, there are a lot of details, in this case for observing the rules of observation.

MAC Medical Review Activity for the month included: