Coding Corner: Observation Care

Observation care services consist of clinically appropriate, short-term treatment, assessment, and reassessment while determining whether a patient requires hospital inpatient admission or discharge.

Billing Medicare Part B for Observation Care Services

Observation services typically do not exceed 24 hours, and providers may frequently decide to admit a patient in less than 24 hours. The observation service should not exceed 48 hours. Only the ordering or admitting provider responsible for the patient’s care can report observation care CPT codes listed below. All other providers will report the appropriate Evaluation and Management CPT codes (99202-99215).

Observation Care CPT Codes:

• Initial Hospital Inpatient or Observation Care: 99221-99223
• Subsequent Hospital Inpatient or Observation: 99231-99233
• Hospital Inpatient or Observation Same Day Admission and Discharge: 99234-99236
• Hospital Inpatient or Observation Discharge Services: 99238-99239

The provider must report all services administered on a single calendar day using the appropriate code(s). Observation service is an outpatient service, and the place of service (POS) code is 22 (CMS 1500 Box 24B).

Institutional Observation Care Billing:

Institutional observation services are considered outpatient hospital services and bundled into the surgical procedure reimbursement.

Billing Institutional Observation Care Service:

• TOB 13X or 85X
• Revenue Code 0762
• HCPCS codes
• G0378: Hospital observation service per hour
• G0379: Direct admission of patient for hospital observation care

Example: On 1/1/2024 a direct admission of a patient to observation care at 9 a.m. Patient was discharged at 1 a.m. on 1/2/2024. A total of 17 hours.

Billing Scenarios

Do’s

Scenario 1: A patient admitted and discharged from observation care on the same calendar date.

• 99234-99236 if observation stay is at least 8 hours, but less than 24 hours.
• Do not report CPT 99217 because discharge cannot be the same calendar day as the admit.

Scenario 2: Patient transition from observation to inpatient admission on the next or subsequent day.

• Day 1- Initial observation care service: 99221-99223.
• Day 2- Subsequent hospital inpatient or observation care: 99231-99233.

Scenario 3: Patient admitted to observation on March 1 and discharged on March 3.

• Day 1- Initial care: 99221-99223.
• Day 2- Subsequent care: 99231-99233.
• Day 3- Discharge: 99238-99239.

Don’ts

Scenario 1: Provider billed observation care service 99221 on 12/1/24 and a provider of the same specialty and same Tax ID billed observation care service 99223 on 12/3/24.

• The 12/3/24 claim was billed within three days of an initial hospital inpatient or observation care service for the same diagnosis, same practice, and same specialty.

Works Cited

American Medical Association. (2025). CPT 2025 Professional Edition. Chicago: AMA.

CMS IOM . (2025, January 27). Observation Care Services FAQ's. Retrieved from Novitas Solution: https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c04.pdf