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TO:  Hospital Providers

RE:  Outpatient Observation Claim Filing Reminder

Outpatient observation is the medically necessary extended outpatient care provided to a patient whose condition warrants additional observation before a decision is made about admission to the hospital or prolonged patient care.

Outpatient observation can be billed for a recipient who has been seen in the emergency room or is a maternity recipient whose provider ordered observation service.

Outpatient observation charges must be billed in conjunction with the appropriate facility fee (99281 – 99285), except for maternity recipients whose provider has ordered observation services.

Observation Charges Limited to 23 Hour

• For the first three hours of observation, the provider should bill the appropriate facility fee in units of one, in conjunction with the appropriate observation charges in hourly increments.
  
  
• For the 4th - 23rd hours of observation, the provider bills procedure code G0378 with the appropriate facility fee (99281 - 99285) in units of one. 
  
  
• For observation services that span midnight, (recipient is discharged from observation and admitted to the hospital after midnight), the provider bills all observation charges using the admission date to observation services, rendering the per diem method of payment in effect on the date of admission to observation services.
  
  
• For observation services that do NOT span midnight, (recipient is discharged from observation and admitted to the hospital on the same day, before midnight), the provider bills all observation charges with the inpatient charges (bill for the first 3 hours as noted above, and for the 4th -23rd hours (actual hours incurred) bill the per diem for each day with inpatient status).

Example: Observation Services that Span Midnight:

*Note: the number of hours billed does not exceed the 23 hour limit.

Additional information regarding outpatient observation admissions may be found in Chapter 19 of the Provider Billing Manual. Providers with policy questions may contact Medical Services at medicalservices@medicaid.alabama.gov.

The Current Procedural Terminology (CPT) and Current Dental Terminology (CDT) codes descriptors, and other data are copyright © 2025 American Medical Association and © 2025 American Dental Association (or such other date publication of CPT and CDT). All rights reserved. Applicable FARS/DFARS apply.