observation CPT code 99217 - 99220, 99234 - 99236 - HOw to bill

Hospital Observation Services 99217-99220 and 99234-99236

Placement in observation status requires an order from a provider with admitting privileges.  Patients are in observation to determine whether the patient should be admitted to the hospital, transferred to another facility, or sent home.

When there is a three-day observation period, the middle day is coded with an established outpatient visit code, 99211-99215 based on the documentation.

The following services are not covered as outpatient observation services:


•    Observation services that exceed 24 hours unless an exception is deemed necessary following a medical necessity review. 

•    Services that are not reasonable or necessary for the diagnosis or treatment of the patient but are provided for the convenience of the patient, his or her family, or a physician/provider (e.g., following an uncomplicated treatment or procedure; physician/provider busy when patient is physically ready for discharge; patient awaiting placement in a long-term care facility).

•    Inpatient services.

•    Services associated with ambulatory procedure visits.

•    Routine preparation services furnished prior to the testing and recovery afterwards (e.g., patients undergoing diagnostic testing in a hospital outpatient department).

•    Observation concurrent with treatments such as chemotherapy.

•    Services for postoperative monitoring.

•    Any substitution of an outpatient observation service for a medically appropriate inpatient admission.

•    Services that were ordered as inpatient services by the admitting physician/provider but reported as outpatient observation services by the hospital.

•    Standing orders for observation following outpatient services.

•    Discharges to outpatient observation status after an inpatient hospital admission.

When a patient is admitted from observation status, the ADM record for the observation care should be closed out with a disposition type of “admitted.” 

When a patient is referred from observation to an ambulatory procedure unit (APU) or another MTF, the ADM record for the observation care is closed out with disposition type of “immediate referral.” 

E&M codes will be used to document the length and acuity of observation care services in ADM.  Observation E&M codes relate to the number of calendar days (dates) the patient spends in observation status and the acuity of the stay.