CMS has replaced the terms ‘observation status’ with ‘observation services’ in several references throughout the Medicare Claims Processing Manual. The changes are outlined in Transmittal 1745 released May 22.
In this July update of the hospital outpatient prospective payment system, CMS states the following:
Editorial changes to the manuals remove references to 'admission' and 'observation status' in relation to outpatient observation services and direct referrals for observation services. These terms may have been confusing to hospitals. The term 'admission' is typically used to denote an inpatient admission and inpatient hospital services. For payment purposes, there is no payment status called 'observation,' observation care is an outpatient service, ordered by a physician and reported with a HCPCS code.
In the section of the July update titled, “When an Inpatient Admission May Be Changed to Outpatient Status,” CMS added the following language:
The State Operations Manual states that in no case may a non-physician make a final determination that a patient’s stay is not medically necessary or appropriate (see Appendix A - Survey Protocol, Regulations and Interpretive Guidelines for Hospitals). However, CMS encourages and expects hospitals to employ case management staff to facilitate the application of hospital admission protocols and criteria, to facilitate communication between practitioners and the UR committee or Quality Improvement Organization (QIO), and to assist the UR committee in the decision-making process. Use of Condition Code 44 is not intended to serve as a substitute for adequate staffing of utilization management personnel or for continued education of physicians and hospital staff about each hospital’s existing policies and admission protocols.
CMS also added a section in the update titled “Policy and Billing Instructions for Condition Code 44,” which elaborates on its guidelines for reporting this code.
To learn more about Transmittal 1745, access the June 2 issue of Medicare Weekly Update.
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