Finally, an APC code for observation: Now find out the rules for getting paid

Experts predict closed ED observation units will reopen

A 45-year-old woman comes to your ED with nausea and shortness of breath, with a history of high cholesterol. Her cardiac markers and electrocardiogram (ECG) are normal. Do you discharge or admit? In this case, the woman was sent to an ED observation unit. Three hours later, she began having chest pain, and a second set of enzymes and an ECG revealed a myocardial infarction, recalls Sandra Sieck, RN, director of cardiovascular development at Providence Hospital in Mobile, AL.

In the past, the patient would have been discharged with a possible return admission within 72 hours, or admitted without a confirmed diagnosis, says Sieck. New reimbursement for ED observation gives you a "third door" option for patients, she reports.

As of April 1, you’re reimbursed by the Centers for Medicare & Medicaid Services (CMS) for observing patients with chest pain, asthma, and congestive heart failure in the ED, due to a new ambulatory payment classification code (APC 0339). (See "Resources" at the end of this article for information on how to obtain a copy of the complete CMS ruling.)

The new APC code has a payment rate of $351, and it will be a major financial boost if you provide observation services for Medicare patients, according to Michael A. Ross, MD, FACEP, director of the emergency observation unit and chest pain center at William Beaumont Hospital in Royal Oak, MI. "The amount that is paid for this observation APC is greater than what is paid for any of the emergency visit APCs, and it is in addition to those," he explains. This is appropriate, because more time and nursing care is required for observation patients, adds Ross.

Some ED observation units closed after APCs were implemented in April 2000, because there was no separate reimbursement. But that likely will change, according to Ross. (For more information on this topic, see "APCs have disturbing impact on emergency observation services" in ED Management, May 2001, p. 49.) "Since the new APC code was announced, the number of calls I have received about ED observation has quadrupled," he reports. "I have also seen several EDs open new units in the last six months."

Some patients still left out

Some ED managers argue that CMS didn’t go far enough, because many patients still are not covered. "CMS first offered no separate reimbursement and are now giving it back only for 20% of patients," argues Louis Graff, MD, FACEP, FACP, associate chief of emergency medicine at New Britain (CT) General Hospital. He points to the following conditions that are not covered under the new APC code: dehydration, abdominal pain, syncope, gastrointestinal bleeding, atrial fibrillation, and seizures. "If you are observing a patient with a condition other than chest pain, asthma, or congestive heart failure, you won’t be reimbursed," he says.

To be reimbursed for any patient observed in the ED, you must follow specific criteria required by CMS, as follows:

• An ED visit (APC 0610, 0611, or 0612) or a clinic visit (APC 0600, 0601, or 0602) must be billed in conjunction with each bill for observation services. If you don’t have a billing code for an ED visit or clinic visit, you will fail the billing audit by CMS and won’t be reimbursed for observation, says Graff. "There are specific CPT billing codes for the three conditions, and you need to be familiar with them," he adds.

• Observation care must be billed hourly for a minimum of eight hours up to a maximum of 48 hours. Ross notes that most patients do not spend more than 12-15 hours in an observation unit. "If a patient’s length of stay is beyond that, you may be losing money, or at least not maximizing payment," he says. "So it’s in your best interest to do everything possible to meet that benchmark."

He notes that the patient’s stay in ED observation isn’t counted from when the physician writes the orders, because that is a physician service and not a hospital service. "The clock starts when the nurse acts on the physician orders," he explains. Therefore, it’s important that the ED nurse documents that action in a clearly identifiable way, says Ross. "CMS does not specify the setting observation must take place in," he notes. "If the physician wrote the orders in the ED, the nurse could start the orders there, before the patient actually is brought to the observation bed." It’s also important for physicians to document the time they discharged the patient from observation, because that is when the "clock" ends, adds Ross.

• The patient must be under the care of a physician during the period of observation, as documented in the medical record by admission, discharge, and other appropriate progress notes that are timed, written, and signed by the physician. CMS requires in-person physician involvement for ordering observation, assessing, and writing orders and admission/discharge notes, says Ross. He gives the following examples of "bad observation" in CMS’ view:

  • prolonged ED visits billed as observation;
  • patients discharged but awaiting a ride home, to meet the eight-hour rule;
  • a patient in a holding pattern who is not being actively managed.

"These are examples of the type of service they are trying to steer away from," says Ross. "They want clear documentation of very aggressive physician involvement. For that kind of service, they are willing to unbundle observation."

• The medical record must include documentation that the physician used risk stratification criteria. You must use specific criteria to support the use of ED observation, advises Ross. "You need a written policy for how the service will operate in general, and also written policies for each of the specific conditions you will be managing," he says.

• The physician must write admission and discharge notes in the medical record. Ross notes that the following documentation is required for ED observation patients:

  • the initial history, physical, and medical decision-making done in the ED;
  • progress notes;
  • a final discharge summary including the clinical course in the unit, final examination, medical decision-making, and discharge instructions.

"This allows the ED physicians to bill the observation’ professional CPT codes instead of the emergency’ codes," says Ross. "The advantage is that the observation CPT codes also pay for the work of discharging the patient, whereas the emergency codes do not."

• With regard to direct admissions from physician offices, separate payment for observation will not be made unless a physician is present to order the initiation of observation services and to monitor the patient as clinically appropriate. When a patient is admitted directly from a physician’s office, there is no separate payment for observation, says Ross. "CMS is making it crystal clear that payment for that type of observation occurs, but it’s a bundled payment," says Ross. Instead, the patient could be sent from the physician’s office to the ED where initial evaluation and management occurs, Ross suggests. "In many cases, patients may actually meet inpatient criteria," he says. "If not, they still can be observed."


For more information about reimbursement for observation, contact:

Louis Graff, MD, FACEP, FACP, Department of Emergency Medicine, New Britain General Hospital, 100 Grand St., New Britain, CT 06050. Telephone: (860) 224-5675. Fax: (860) 224-5774. E-mail:

Michael A. Ross, MD, FACEP, Department of Emergency Medicine, William Beaumont Hospital, 3601 W. 13 Mile Road, Royal Oak, MI 48073-6769. Telephone: (248) 551-3080. Fax: (248) 551-2017. E-mail:

Sandra Sieck, RN, Director, Cardiovascular Development, Providence Hospital, 6801 Airport Blvd., Mobile, AL 36608. Telephone: (251) 633-1646. Fax: (251) 607-9145. E-mail:


The Centers for Medicare & Medicaid Services final rule, which contains information about the new ambulatory payment classification code created for ED observation, is Medicare Program; Correction of Certain Calendar Year 2002 Payment Rates Under the Hospital Outpatient Prospective Payment System and the Pro Rata Reduction on Transitional Pass-Through Payments; Correction of Technical and Typographical Errors. The final rule was published in the Federal Register on Nov. 30, 2001, and an amendment was published March 1, 2002.

To order a copy, contact New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $10. The Federal Register is available at many public and academic libraries. It is also available via GPO Access, a service of the U.S. Government Printing Office. The web site address is: