Outpatient Observation Services

Through collaboration with hospitals and the Fiscal Intermediary, the Iowa Foundation for Medical Care (IFMC) became aware that the development of the Ambulatory Payment Classification (APC) under Medicare created confusion regarding the use of the outpatient observation setting. Hospitals and physicians were no longer using outpatient observation services. Observation services were not eliminated with the creation of the APCs.

Observation services are those services furnished by a hospital, on the hospital's premises, including the use of a bed and periodic monitoring by a hospital's nursing or other staff. Observations services may be used to evaluate a patient's condition, or used to determine the need for a possible admission to the hospital. Many patients recover sufficiently during this period to be safely discharged from the observation setting.

If a physician determines the patient is too ill or will not improve enough for discharge within 24 hours, the physician should order an acute care admission rather than placing the patient in observation. Most observation services do not exceed one day. Occasionally a second day may be required.

A patient may be converted to an inpatient at anytime during the observation stay if the physician thinks an acute care admission is necessary. However, the acute care admission date is the date the physician writes the order for acute care, not the date the patient was admitted to observation. Also, if the patient is admitted to acute care, the admission can not be converted to an observation stay.

Factors to consider when making a level of care decision:

• the severity of the patient's condition upon arrival to the hospital
  
• the medical predictability of the clinical course and potential adverse complications at the time the patient arrives at the hospital
  
  

Appropriate use of observation:

• treatment of a condition that requires monitoring but would normally resolve within 24 hours
• monitoring and evaluation to determine a diagnosis and the need for further treatment or inpatient admission
• postoperative complications following an outpatient procedure that require additional monitoring and evaluation beyond what is expected in the normal course of recovery (for example, abnormal postoperative bleeding, poor pain management, intractable vomiting, delayed recovery from anesthesia, etc.)
  
  

Inappropriate use of observation:

• services provided for the convenience of the patient, facility, or physician social factors
  
• patients awaiting nursing home placement
  
• routine recovery period following a test or procedure as a substitute for appropriate inpatient admission in cases where the patient is expected to require intense treatment that can only be provided in the inpatient setting
  
• routine outpatient administration of blood, chemotherapy or intravenous infusions
  
  

Documentation:

There must be an order in the medical record for outpatient observation status. A stamp or preprinted order that allows the physician to select the appropriate level of care is appropriate.

The level of care order should be dated, timed and signed.

• "Admit to outpatient observation"; or "admit to OPO"; is the preferred wording.
  
• There should be sufficient rationale documented to support the level of care and level of services ordered, including any outpatient treatment that may have a bearing on the case.
  
  

As part of the Payment Error Prevention Program, IFMC provides educational interventions to assist in reducing potential payment errors by medically unnecessary admissions. This initiative includes the development of educational posters regarding the appropriate use of the observation setting. These posters were distributed to all hospitals in the state and are available for reorder. To request additional interventions, please contact Margaret Jones at 1-800-383-2856, extension 8042.