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Initial observation care? Time is on your side
This year's big change in observation billing

Keywords: ICD-9 code changes 2012: billing initial observation, counseling, and coordinating care


by David Frenz, MD
Sue A. Lewis, RN, CPC, PCS




Published in the February 2012 issue of Today's Hospitalist

EACH NEW YEAR typically brings a host of billing and coding changes, and 2012 is no exception. Kristy Welker reviewed some important issues related to ICD-9 codes in the January issue ("This year's ICD-9 update"). We're continuing that theme by looking at a big billing change related to observation care.

Brief review
Observation care is a source of great torment for providers and a top target for auditors. (See "Thinking of admitting this patient?"). Before jumping into what's new, let's review the basics of the service itself.

The Centers for
You can now bill initial observation care according to time spent—if more than 50% of that time is devoted to counseling and/or coordinating care.

Medicare and Medicaid Services (CMS) defines observation care as "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." Basically, patients on observation status are too sick to go home right away but not sick enough to meet criteria to be admitted.

Observation care is intended to be a time-limited outpatient service. According to the CMS, "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." It further notes that, "In only rare and exceptional cases do reasonable and necessary outpatient observation services span more than 48 hours."

Time for change
There are three levels of service for the initial patient encounter for observation care. Like other evaluation and management (E/M) codes, those three levels follow the history, physical exam and medical decision-making rubric. (See "Initial observation care," below.)

Here's this year's big change: Initial observation care can now be billed according to time spent—provided that more than 50% of the time you spend in that initial care is devoted to counseling and/or coordinating care. The CMS requires face-to-face contact with the patient; time spent with family does not count toward that time total unless the patient is also present. By definition, floor time (your clinical work outside of the patient's presence) is excluded from the equation.

Being able to bill time spent (if warranted) is important because observation care is less remunerative than inpatient encounters. Here in Minnesota—and your rates may differ slightly—payment starts at $62 for 99218 (the lowest level of initial observation care, when the observation admit and discharge take place on two separate calendar days), jumps to $104 for 99219 (level II) and tops out at $145 for 99220 (level III). In contrast, the familiar 99221, 99222 and 99223 (initial hospital care codes) are worth $93, $126 and $186, respectively.

Details, details
"Counseling" and "coordination of care" are defined in Current Procedural Terminology (CPT), which is maintained by the American Medical Association. Counseling is considered "a discussion with a patient and/or family concerning one or more of the following areas":

  • diagnostic test results and/or recommended diagnostic studies;
  • prognosis;
  • risks and benefits of disease management/treatment options;
  • instructions for disease management, treatment and/or follow-up;
  • importance of compliance with management/treatment options elected;
  • risk factor reduction; and
  • patient and family education.

    And here's the definition of coordination of care:

  • organizing or arranging referrals to specialty providers, community resources or other services related to the management of the patient's condition(s); and
  • addressing the patient's environmental, cultural and/ or psychosocial needs.

    If you decide to bill based on time spent, your documentation should specify which counseling or coordination of care element(s) were involved. Permutations of the preceding bullet points, modified per clinical circumstances, are the best way to meet this requirement.

    Your time is valuable
    As we all know, patient encounters can be time-consuming. Patients and their families often have lots of questions about their care and the minutes really add up.

    This usually isn't a big deal for initial hospital care because inpatients are pretty sick. You generally arrive at the same level of service regardless of whether you go the history/physical exam/medical decision-making route or bill based on time.

    Time matters much more when providing initial observation care because patients just aren't as sick. Medical decision-making is always the sticking point. You might sink 60 minutes into a case that musters only a 99218 based on medical complexity. That same 60 minutes could have easily been a 99223 if you were seeing an inpatient instead—a whopping $124 differential.

    Billing based on time for initial observation care closes the gap a little. As long as the higher level of service is warranted by medical necessity, you could improve to a 99219 and pick up another $42. It's still not a 99223, but at least it's something.

    David Frenz, MD, is a hospitalist for HealthEast Care System in St. Paul, Minn., and is board certified in both family medicine and addiction medicine. He serves as system medical director for addiction medicine and can be reached at dafrenz@ healtheast.org. Sue A. Lewis, RN, CPC, PCS, is a compliance consultant with HealthEast Care System.


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