LCD L34552: Outpatient Observation Bed/Room Services

Observation services are defined as the use of a bed and periodic monitoring by a hospital's nursing or other ancillary staff, which are reasonable and necessary to evaluate an outpatient's condition to determine the need for possible inpatient admission.

The services may be considered covered only when provided under a physician's order (or under the order of another person who is authorized by state statute and the hospital's bylaws to admit patients or order outpatient testing).

Outpatient observation services are not to be used as a substitute for medically necessary inpatient admissions. Outpatient observation services are not to be used for the convenience of the hospital, its physicians, patients, or patient's families, or while awaiting placement to another health care facility.

Outpatient observation services must be patient specific and not part of the facilities standard operating procedure or protocol for a given diagnosis or service. Observation services, generally, do not exceed 24 hours.

Documentation should include:

1. The attending physician's order including “clock time” for the observation service or “clock time” can be noted in the nursing admission notes/observation unit notes outlining the patient’s condition and treatment.

2. Observation time which begins at the "clock time" documented in the patient’s medical record, and which coincides with the time the patient is placed in a bed for the purpose of initiating observation care in accordance with a physician’s order.

3. The ending time for observation occurs either when the patient is discharged from the hospital or is admitted as an inpatient. The time when a patient is “discharged” from observation status is the "clock time" when all clinical or medical interventions have been completed, including any necessary follow-up care furnished by hospital staff and physicians that may take place after a physician has ordered that the patient be released or admitted as an inpatient. However, observation care does not include time spent by the patient in the hospital subsequent to the conclusion of therapeutic, clinical, or medical interventions, such as time spent waiting for transportation to go home.

4. The beneficiary is under the care of a physician during the period of observation as documented in the medical record by admission, discharge, and appropriate progress notes.

5. Risk stratification criteria (such as intensity of service and severity of illness) were used in considering potential benefits of observation care.

Observation claims exceeding 48 hours may be subject to medical review.

Outpatient observation services are categorized as follows:

Diagnostic Testing

For scheduled outpatient diagnostic tests which are invasive in nature, the routine preparation before the test and the immediate recovery period following the test is not considered to be an observation service. However, when a patient has a significant adverse reaction (beyond the usual and expected response) as a result of the test that requires further monitoring, outpatient observation services may be reasonable and necessary.

Observation services begin at that point in time when the reaction occurred and would end when it is determined whether or not the patient required inpatient admission. Medical review decisions will be based on the documentation in the patient's medical record.

Outpatient Therapeutic Services

Observation status does not apply when a beneficiary is treated as an outpatient for the administration of blood only and receives no other medical treatment. The use of the hospital facilities is inherent in the administration of the blood and is included in the payment for administration.

When the patient has been scheduled for ongoing therapeutic services as a result of a known medical condition, a period of time is often required to evaluate the response to that service. This period of evaluation is an appropriate component of the therapeutic service and is not considered an observation service.

The observation service begins at that point in time when a significant adverse reaction occurred that is above and beyond the usual and expected response to the service.

Patient Evaluation

When a patient arrives at the facility with an unstable medical condition (generally via the Emergency Department), observation services may be reasonable and necessary to evaluate the medical condition to determine the need for a possible admission to the hospital as an inpatient.

An unstable medical condition can be defined as:

• Variance from generally accepted normal laboratory values; and

• Clinical signs and symptoms present that are above or below those of normal range (for the patient) and are such that further monitoring and evaluation is needed. Changes in the patient's status or condition are anticipated, and immediate medical intervention may be required.

Documentation in the patient's medical record must support the medical necessity of the observation service.

Upon internal review performed before the claim was initially submitted and upon the hospital determining that the services did not meet its inpatient criteria, an inpatient status may not be automatically changed to observation status. An observation stay must adhere to the criteria as described in the Coverage Indications, Limitations and/or Medical Necessity section of this LCD.

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