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Medicare Hospital Observation Status
Physician Quick Reference Guide
Hospital observation services— definition
Outpatient services furnished in a hospital, including the use of a
bed and at least periodic monitoring by its nursing or other staff, that
are reasonable and necessary to evaluate and treat a patient’s
condition or determine the need for inpatient admission.
Observation stays are
• outpatient care, although rendered in a hospital
• intended for short-term monitoring—generally < 48 hours
Documentation is critical. A physician’s order must specify
“observation status” and must be signed and dated.
When a patient has been in observation status for 24 hours,
documentation in the progress notes must include
• the need to continue observation status, with plan for discharge
within the next 12–24 hours
• the need to convert to inpatient, documenting the medical
necessity for admission
• medical stability for discharge and plan for follow-up
• Conversion of observation to inpatient status cannot be
– Medical necessity for admission must be met and documented
at the time of conversion.
– Admission status cannot be changed after discharge or
submission of the first claim.
• Conversion of inpatient to observation status can be done prior
to discharge if
– the original order was ambiguous and the physician clarifies
that order (must support change with contemporaneous medical
record/physician notes and orders); or
– the hospital UR committee determines that services did not
meet inpatient criteria and all of the following are met
(Condition Code 44):
– a physician (does not have to be admitting physician)
concurs with the decision and this is documented in
the medical record
– the change in status is made prior to discharge
– the hospital has not yet submitted the inpatient
claim to Medicare — continued
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Medicare Hospital Observation Status
• Continuous monitoring, such as telemetry, can be provided in
an observation or inpatient status; in determining admission
status, consider overall severity of illness and intensity of services
rather than any single or specific intervention.
• Hospitals can use specialty inpatient areas (including CCU or
ICU) to provide observation services (e.g., for telemetry). Level of
care, not physical location of the bed, dictates admission status.
• For Asthma, CHF, and Chest Pain only: Separate hospital
reimbursement is available when patients with these medical
conditions are observed and treated for more than 8 hours, up to
a maximum of 48 hours. All other hospital observation services
are reimbursed as packaged services.
• Examples of other conditions potentially appropriate for
observation services: TIA, closed head injury, blunt abdominal
trauma, and unexpected outpatient postsurgical complications.
• If observation lasts > 48 hours: Medical necessity must be
clearly documented. Consider whether inpatient admission would
• NOTE: Medicare requires some procedures to be done in the
inpatient setting. Consult your UR department for the Medicare
• Private insurance companies’ admission status rules may differ
Please contact your hospital’s utilization review staff with questions
regarding patient admission status.
2020 SW Fourth Avenue, Suite 520 • Portland, OR 97201
503-279-0100 • Fax 503-279-0190 • www.acumentra.org
This material was prepared by Acumentra Health, the Medicare Quality Improvement Organization for Oregon,
under contract with the Centers for Medicare & Medicaid Services (CMS), an agency of the U.S. Department of
Health and Human Services. The contents presented do not necessarily reflect CMS policy.