Billing Outpatient Observation Services HCPCS CODE G0378, G0379


Outpatient observation services defined:
“The use of a bed for physician periodic monitoring and active monitoring by the hospital's nursing or other ancillary staff, for the patient care which are reasonable and necessary to evaluate an outpatient's condition or determine the need for an inpatient admission.

Observation services must be patient specific and not part of the facility’s standard operating procedures. For example, post-procedural recovery and monitoring would not be billable as observation. In certain instances, specific clinical situations may arise and additional outpatient services, or an inpatient admission, may be medically necessary. However, this would have to be outside the standard recovery and monitoring periods for the procedure rendered.

Observation services are not considered medically necessary when the patient’s current medical condition does not warrant observation, or when there is not an expectation of significant deterioration in the patient’s medical condition in the near future.

Observation services generally are not expected to exceed 48 hours in duration. Observation services greater than 48 hours in duration are seen as rare and exceptional cases. If medically necessary, Medicare will cover up to 72 hours of observation services. Observation services rendered beyond 72 hours is considered medically unlikely and will be denied as such. The appeals process must be followed to have observation services exceeding 72 hours to be considered for payment. A patient in observation status is either:

Admitted as an inpatient based on the patient’s condition or;
An outpatient and released when the physician determines observation is no longer medically necessary

A physician’s order is required when placing a patient in observation. Lack of documentation can lead to claim errors and payment retractions. A lack of documentation for an inpatient admission does not warrant retroactive observation billing. An order to admit the patient as an inpatient is also required when billing for an inpatient stay. Again, lack of documentation that clearly indicates the order for admission is grounds for a claim error and payment retraction. For example, and order simply documented as “admit” will be treated as an inpatient admission. A clearly worded order such as “inpatient admission” or “place patient in outpatient observation” will ensure appropriate patient care and prevent hospital billing errors. It is imperative that there is a continued focus on lowering the CERT rate and facility involvement is a key component to this goal.

Observation Service Billing Requirements

As discussed; observation services are outpatient services

Therefore when the facility is billing for observation services, an outpatient claim will be submitted under a 13X or 85X Type of Bill (TOB). Observation is reported with revenue code 0762 and HCPCS code G0378.

Because observation may span multiple calendar dates you might be wondering how is this billed following line item billing guidelines? Observation is not split by calendar days per line item. Observation is billed on one line including the total accumulation of observation time with the date that observation care began.

Institutions are to follow typical billing requirements, reporting all appropriate and applicable ancillary revenue codes and HCPCS / CPT codes along with all applicable diagnosis codes associated with the outpatient service.



In conclusion, providers are reminded that observation services are provided on an outpatient basis and should be billed according to observation billing guidelines; which state that all hours of observation should be submitted on a single line with the date of service being the date the order for observation was written. Orders for observation services are not considered to be valid inpatient admission levels of care orders. When billing observation services, Novitas Solutions expects the charges associated with those services to be billed as outpatient level of care services. Providers are encouraged to participate in educational opportunities offered by Provider Outreach and Education (POE). Training and educational materials are focused on addressing topics that assist providers in understanding Medicare policies.


Billing and Payment for All Hospital Observation Services Furnished Between January 1, 2006 and December 31, 2007


Since January 1, 2006, two G-codes have been used to report observation services and direct referral for observation care. For claims for dates of service January 1, 2006 through December 31, 2007, the Integrated Outpatient Code Editor (I/OCE) determines whether the observation care or direct referral services are packaged or separately payable. Thus, hospitals provide consistent coding and billing under all circumstances in which they deliver observation care.

Beginning January 1, 2006, hospitals should not report Procedure  codes 99217-99220 or 99234-99236 for observation services. In addition, the following HCPCS codes were discontinued as of January 1, 2006: G0244 (Observation care by facility to patient), G0263 (Direct Admission with congestive heart failure, chest pain or asthma), and G0264 (Assessment other than congestive heart failure, chest pain, or asthma).

The three discontinued G-codes and the Procedure  codes that were no longer recognized were replaced by two new G-codes to be used by hospitals to report all observation services, whether separately payable or packaged, and direct referral for observation care, whether separately payable or packaged:

• G0378- Hospital observation service, per hour; and

• G0379- Direct admission of patient for hospital observation care.

The I/OCE determines whether observation services billed as units of G0378 are separately payable under APC 0339 (Observation) or whether payment for observation services will be packaged into the payment for other services provided by the hospital in the same encounter. Therefore, hospitals should bill HCPCS code G0378 when observation services are ordered and provided to any patient regardless of the patient’s condition. The units of service should equal the number of hours the patient receives observation services.

Hospitals should report G0379 when observation services are the result of a direct referral for observation care without an associated emergency room visit, hospital outpatient clinic visit, critical care service, or hospital outpatient surgical procedure (status indicator T procedure) on the day of initiation of observation services. Hospitals should only report HCPCS code G0379 when a patient is referred directly for observation care after being seen by a physician in the community (see §290.4.2 below)

Some non-repetitive OPPS services provided on the same day by a hospital may be billed on different claims, provided that all charges associated with each procedure or service being reported are billed on the same claim with the HCPCS code which describes that service. See chapter 1, section 50.2.2 of this manual. It is vitally important that all of the charges that pertain to a non-repetitive, separately paid procedure or service be reported on the same claim with that procedure or service. It should also be emphasized that this relaxation of same day billing requirements for some non-repetitive services does not apply to non-repetitive services provided on the same day as either direct referral to observation care or observation services because the OCE claim-by-claim logic cannot function properly unless all services related to the episode of observation care, including diagnostic tests, lab services, hospital clinic visits, emergency department visits, critical care services, and status indicator T procedures, are reported on the same claim. Additional guidance can be found in chapter 1, section 50.2.2 of this manual.



Separate and Packaged Payment for Direct Referral for Observation Services Furnished Between January 1, 2006 and December 31, 2007


In order to receive separate payment for a direct referral for observation care (APC 0604), the claim must show:

1. Both HCPCS codes G0378 (Hourly Observation) and G0379 (Direct Admit to Observation) with the same date of service;

2. That no services with a status indicator T or V or Critical care (APC 0617) were provided on the same day of service as HCPCS code G0379; and

3. The observation care does not qualify for separate payment under APC 0339.


Only a direct referral for observation services billed on a 13X bill type may be considered for a separate APC payment.

Separate payment is not allowed for HCPCS code G0379, direct admission to observation care, when billed with the same date of service as a hospital clinic visit, emergency room visit, critical care service, or “T” status procedure.

If a bill for the direct referral for observation services does not meet the three requirements listed above, then payment for the direct referral service will be packaged into payments for other separately payable services provided to the beneficiary in the same encounter.

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