Outpatient Observation



Attention: All Outpatient Hospital Providers


Effective for dates of service October 1, 2010, and thereafter, outpatient observation CPT codes 99218 through 99220 have been replaced with HCPCS Level II procedure code G0378. The policy is revised as written below:


Outpatient Observation


Outpatient observation is a covered service billable only by a hospital provider enrolled in the Medicaid program.


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 is limited to 23 hours or less.


Outpatient observation is considered an outpatient visit and will be counted in the yearly outpatient visit benefit unless documented as a certified emergency by the attending physician at the time of service.


An observation unit is an area designated by the hospital in which patient beds are set aside to provide any medically necessary extended outpatient care to a patient whose condition requires additional observation. These beds may be located in various parts of the hospital depending on the type of extended care needed for the patient. The following guidelines apply:


• Patient must be admitted through the emergency room.


• A physician's order is required for admission and discharge from the observation unit.


• A physician must have personal contact with the patient at least once during the observation     stay.


• A registered nurse or an employee under his/her direct supervision must monitor patients in the observation unit.


• Medical records must contain appropriate documentation of the actual time a patient is in the observation unit as well as the services provided.


• A recipient must be in the observation unit at least three hours, but no more than 23 hours.


Outpatient observation charges must be billed in conjunction with the appropriate facility fee (99281 – 99285).


Observation coverage is billable in hourly increments only. A recipient must receive observation services a minimum of 30 minutes before the observation charge can be billed. Observation charges are billed as follows:


• For the first three hours of observation the provider should bill a facility fee (99281 - 99285) with units of one.


• Procedure code G0378 should be used to bill the 4th through 23rd hour for the evaluation and management of a patient in outpatient observation.


Procedure Code G0378 must be billed with a facility fee (99281-99285). The facility fee is billed with units of one and covers the first three hours.


Ancillary charges (lab work, x-ray, etc.) may be billed with the facility fee and observation charge.

If the observation spans midnight and the recipient is discharged from the observation unit the following day, the provider should bill all observation charges using the date of admission to the observation unit on the claim form.


If a recipient is admitted to the hospital from outpatient observation before midnight of the day the services were rendered at the same hospital, all observation charges must be combined and billed with the inpatient charges. The provider should indicate the date of admission to the inpatient hospital as the admission date on the claim form for inpatient services.


Outpatient observation charges cannot be billed in conjunction with outpatient surgery.

Medical records will be reviewed retrospectively by Medicaid to ensure compliance with the above-stated guidelines and criteria.


If there are any questions contact Jerri Jackson by telephone at 334-242-5630 or by e-mail at