Documenting and coding observation services in 2021

• For Medicare patients in observation, the consulting physician uses new and established patient visit codes. Only the admitting physician can use initial and subsequent observation codes for Medicare patients in observation.

• Some commercial payers still recognize outpatient consults, and allow a consulting physician to bill subsequent observation codes. But Medicare does not. 

• Questions about what category of code to use when? Download our category of code reference.
• The patient status can change from observation to inpatient.

Changed office visit rules

In 2021, the documentation requirements for codes 99202—99215 changed. These office and other outpatient codes are used in the office, or in a hospital outpatient department. They are also used by the consulting physician for Medicare patients receiving observation services, which is an outpatient service. The changed documentation rules go with the codes, not with the location where the services provided. That means, a consultant using a new patient visit code for a patient in observation status will select the level of service based on the new CPT documentation rules, not the existing 1995 or 1997 rules.

Status change

But what if the patient’s status changes from observation to inpatient? The initial hospital visit codes will be used to report the consultant’s work, codes 99221—99223. The level of service will be determined by the existing 1995/1997  guidelines.

One of the key differences with the new CPT guidelines for office and outpatient services is that neither history nor exam are determining factors in selecting a level of service. Let’s just imagine that the physician documents a detailed history and exam, and the medical decision making is moderate. Using the new rules, that visit could be billed as a 99204.

However, if the patient’s status changes to inpatient status, the physician would be limited to a level one initial hospital service, 99221 because of the level of history and exam.  And if the visit had either an expanded problem focused history or exam, it would not meet the criteria for even the lowest level initial hospital care.

	Medicare new patient in observation; consulting physician documents a detailed history, detailed exam and moderate MDM	Medicare new patient in observation changed to inpatient status; consulting physician documents a detailed history, detailed exam and moderate MDM
Category of code billed	New patient visit	Initial hospital service
Guidelines used to select code level	2021 for office/outpatient services	1995 or 1997 Documentation Guidelines
Level of history	Not used for code selection	Detailed
Level of exam	Not used for code selection	Detailed
MDM	Moderate	Moderate
Code supported	99204	99221

What should clinicians who see patients in observation do? Continue to document observation services using the existing guidelines. Then, if the patient status changes to inpatient, the limitation on the level of service will be complexity, not history or exam.

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