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Observation Is Key Topic in OPPS Final Rule for 2013

November 29, 2012:

Brigid T. Caffrey, BA, BS, CCS, Manager, Clinical/Technical Editors

Observation services receive a good deal of attention in the calendar year 2013 final rule for the outpatient prospective payment system (OPPS), released November 1 in the Federal Register.

Among the changes in the final rule is the reassignment of HCPCS code G0379 (Direct admission of patient for hospital observation care on the same day) to ambulatory payment classification (APC) 0608 (Level 5 Hospital Clinic Visits). The Centers for Medicare and Medicaid Services determined that the mean costs and clinical characteristics of the type of admission described by G0379 are similar to those of level 5 evaluation and management (E/M) services. Code G0379 will no longer generate a composite APC when the observation admission occurs on the same day as an associated emergency room visit or hospital clinic visit.

The OPPS final rule also includes comments related to time-based criteria for inpatient admission, payment alignment, improving beneficiary protections, and revising the qualifying criteria for skilled nursing facility (SNF) coverage, all of which could affect outpatient observation status and reimbursement. Please note that no final decisions were made at this time. Highlights include:

  • To eliminate extended observation cases and address the problem of nonqualifying SNFs, CMS is urged to limit the time outpatient observation services can be received by specifying the observation timeframe (24, 48, or 72 hours).
  • Commenters want CMS to define inpatient status using medical necessity, physician order, and other parameters such as length of stay or number of hours the patient is in the hospital, expectation of overnight stay, and appropriate clinical judgment, without the influence of financial motive.
  • Commenters discussed how patients should be evaluated for inpatient admission during observation, with additional assessments made by a physician.
  • CMS is urged to create an MS-DRG payment for short-stay admissions; inpatient-only procedures and medically complex procedures should be guaranteed to qualify as inpatient; payments should be aligned so as to reduce payment incentives to choose one admit type over another; and payment should be calculated based on specific factors.
  • Observation units should be established in emergency rooms because they are more economical and more efficient than floor units.
  • CMS should create an APC for short-stay encounters that would reflect more accurately resource utilization and acuity for such cases.
  • Commenters urge Medicare to require providers to explain to beneficiaries the cost-sharing implications of outpatient observation versus inpatient services and clarify reviews of “premature” discharge appeals based on patient status at time of discharge.
  • CMS should monitor inappropriate use of observation or counting observation time in with inpatient readmission and issue payment penalties.
  • Observation care should be counted in the three-day hospital inpatient stay for SNF coverage or be waived.


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