Updated on: November 26, 2018

Observing the Rules for Observation after Outpatient Surgery

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Original story posted on: March 20, 2013

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***Article updated on November 26th, 2018 by Juliet B. Ugarte Hopkins, MD, CHCQM-PHYADV 

***Original article published on March 21st, 2013 by Steven J. Meryerson, MD, CHCQM-PHYADV -  before the advent of the CMS two-midnight rule. 


Hopkin's update | November, 2018:

Written in March of 2013 by the highly respected Dr. Steven Meyerson, “Observing the Rules for Observation After Outpatient Surgery” evolved over time into one of the most-read articles in RACmonitor’s history. This point became extremely relevant to me the other day when my manager of Case Management rushed into my office, papers in hand hot off the printer.

“Read this article!” she exclaimed. “I think we might need to change the way we think about patients who are hospitalized after pre-scheduled procedures.”

Reading through the piece (admittedly for the first time – forgive me, Dr. Meyerson!) it very quickly became apparent why the recommendations and direction were not already part of my modus operandi as physician advisor to my health system. But it was ALSO very clear why my department manager would have no knowledge of this. Which brought the concern to my mind, “what about RACmonitor’s OTHER followers? How will THEY know what’s happening here?”

And so, dear readers, I am happy to announce that the publisher of RACmonitor, Chuck Buck, along with Dr. Meyerson himself, have given me their blessing to bring up-to-speed this classic article which was excellent direction and advice back in the day…before the Centers for Medicare and Medicaid (CMS) Two-Midnight Rule came into existence. (Which happened on October 1, 2013, or, as of the time I am writing this, 1,795 days, 17 hours, 20 minutes, and 24 seconds ago per the live counter at www.ronaldhirsch.com, no joke, it’s hysterical, check it out.)


Original article | March, 2013:

The rules governing the use of observation for patients undergoing scheduled outpatient procedures are quite different from those that apply to patients coming in from the ED with undiagnosed symptoms or urgent conditions. Placement and billing errors are common, so it is worth reviewing the subject at this time.


Hopkin's update | November, 2018:

This remains true, but I believe the greater point now is that the finer points of conversion from Outpatient to Observation for a scheduled post-operative patient require much more deliberate education for physicians, nurses, and case managers. More on that, in a bit. - Juliet B. Ugarte Hopkins, MD, CHCQM-PHYADV


Original article | March, 2013:

Actually, it's quite simple: as a rule of thumb, the only time observation can be used for a patient having a scheduled outpatient surgery or procedure is when there is a postoperative complication that complicates and prolongs routine recovery. But like most things Medicare, it's never quite that simple – so read on.


Hopkin's update | November, 2018:

Today, post-Two-Midnight Rule, this is exactly the only time Observation can be used for a patient having a scheduled outpatient surgery or procedure – when there is a complication either during the procedure or during the recovery period. While a prolongation of the recovery sometimes comes into play…it’s not a necessity.

Anything which requires care above and beyond what was originally expected or anticipated makes change from Outpatient to Outpatient with Observation services appropriate.

This could involve something as simple as nursing performing vitals every two hours instead of every four. The point is that MORE care or services are being provided to the patient than per the usual routine. Something as subtle as this can sometimes be hard for people to recognize, which is why it is important to be vigilant, so Observation hours are captured appropriately. 


Original article | March, 2013:

According to the Medicare Claims Processing Manual (Chapter 4, Section 290.2.2), "hospitals should not report as observation care services that are part of another Part B service, such as postoperative monitoring during a standard recovery period (e.g., 4-6 hours)." While this section mentions "4 to 6 hours" as an example of a standard recovery period, it is important to note that this time frame only is used as an example ("e.g." means for example) and does not set an upper limit on the time permissible for recovery. In other words, it would be inappropriate to place a postoperative patient into recovery just because an arbitrary six-hour time period has elapsed. The Centers for Medicare & Medicaid Services (CMS) explains that a patient having an outpatient procedure may be expected to stay up to 24 hours: "When patients with known diagnoses enter a hospital for a specific minor surgical procedure or other treatment that is expected to keep them in the hospital for only a few hours (less than 24)," the agency has indicated, "they are considered outpatients for coverage purposes regardless of the hour they came to the hospital, whether they used a bed, and whether they remained in the hospital past midnight." (Medicare Benefit Policy Manual, Chapter 1.) In this case, "less than 24 " does define a time limit on an expected outpatient stay, and this clarifies that a patient's stay may be overnight in a hospital bed in outpatient status and still qualify as recovery.


Hopkin's update | November, 2018:

Chapter 4 of the Medicare Claims Processing Manual was last revised on December 22, 2017 but changes were not made to Section 290.2.2. It continues to include the direction mentioned above about not reporting Observation services hours in cases of “postoperative monitoring during a standard recovery period (e.g., 4-6 hours)." Again, like before, the timeframe of “4 – 6 hours” is not a guide on how long recovery should be considered “routine” following a procedure. If one of your surgeons feels “routine recovery” following a procedure involves hospital care for 48 hours, that patient should remain in Outpatient status for 48 hours.

But you’ll probably want to sit down and figure out WHY she considers this prolonged time period routine and necessary. Is it truly a best practice and standard of care? Or, is it simply the way she’s practiced for the last 25 years?


Original article | March, 2013:

On the other hand, the Florida fiscal intermediary in 2003 explained that "if the physician intends to keep the patient overnight, especially for 24 hours or more of care at an inpatient level of care (prolonged monitoring given co-morbidity, frequent laboratory studies, frequent IV therapy, etc.) then the physician should schedule an inpatient admission. Also, it is important that physicians document the indications for the procedure and the associated co-morbidities since the medical necessity of the procedure as well as the need for the overnight stay can be reviewed by the QIO." (Florida Medicare A Bulletin, third quarter of 2003.)


Hopkin's update | November, 2018:

This is likely the first paragraph that piqued my manager’s attention, and your first clue that something is awry. “24 hours or more of care” and “inpatient admission” no longer go together post-Two-Midnight Rule. Also, with the exception of total knee arthroplasty as described in the much-obsessed-over 2018 Outpatient Prospective Payment System (OPPS) Final Rule, prolonged monitoring given co-morbidities and/or feared complications which might raise their ugly heads do not support starting with Inpatient nor even counting Observation hours.

For example, a surgeon might elect to keep their patient with a history of asthma who is status-post laparoscopic appendectomy in the hospital overnight due to a concern of bronchospasm post-intubation. But Observation hours should not be counted unless the patient actually develops respiratory issues which require additional assessment or treatment. If the patient’s recovery overnight is unremarkable, the status should remain Outpatient without addition of Observation hours.


Original article | March, 2013:

In the April 7, 2000 Final Outpatient Prospective Payment System (OPPS) Rule (65 FR 18455), in explaining the criteria for selection of procedures for the inpatient-only list, CMS noted that "the inpatient list specifies those services that are only paid when provided in an inpatient setting because of the nature of the procedure, the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged, or the underlying physical condition of the patient." Thus, one of the criteria that distinguish inpatient surgery from outpatient surgery is an expected length of stay of up to 24 hours for outpatient procedures and greater than 24 hours for inpatient. This offers additional evidence indicating that there is no need to change patient status for an overnight stay following uncomplicated outpatient surgery when the stay is expected to be less than 24 hours. Notice that in both cases, whether discussing the expected length of stay for a patient having outpatient surgery or one having an inpatient procedure, it's the physician's expectation at the time of admission that determines the proper level of care, not the actual length of stay as viewed in retrospect.


Hopkin's update | November, 2018:

In the 2018 OPPS Final Rule, CMS refers back to their 2012 OPPS/ASC final rule for discussion on how they identify procedures which are “typically provided only in an inpatient setting” and therefore are on the inpatient only list. But, in true CMS fashion, looking at the 2012 final rule you’ll find it references the April 2000 Final OPPS Rule.

This is the same discussion Dr. Meyerson references about “the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged.” But, it’s important to recognize this is NOT direction to place a procedural patient who has an anticipated need for 24 hours of monitored recovery into Inpatient status.


Original article | March, 2013:

So if the patient can stay overnight in a hospital bed following outpatient tests or surgery without observation, when would observation be appropriate? WPS Medicare (LCD L32222) explained that when a patient has a significant adverse reaction (beyond the usual and expected response) as a result of the test that requires further monitoring, outpatient observation or inpatient hospital services may be reasonable and necessary.


Hopkin's update | November, 2018:

Outpatient with Observation services? Yes. Inpatient? Only if the patient ends up requiring a second midnight of care, or if you want to test your luck with the vague concept of the physician judgment exception added by CMS into the Two-Midnight rule on January 1, 2016. (See Dr. Ronald Hirsch’s article at https://www.racmonitor.com/the-new-short-stay-exception-read-before-using to learn more.)


Original article | March, 2013:

TMF Health Quality Institute, the Texas Medicare QIO, in its Medicare Outpatient Observation Physician Guidelines Q&A answered the question, "Can a same-day surgery patient with no postoperative complications be admitted to observation?" TMF responded "No. There must be medical necessity of observation services documented in the medical record. Observation is not to be used as a substitute for recovery room services." Another question asked, "Can a patient be placed in observation status prior to outpatient surgery?" TMF's answer: "No. The need for observation care should be determined by the patient's condition during the postoperative recovery period, not prior to surgery."

TMF further described other situations in which observation would not be appropriate for surgical patients, such as:

  • Routine stays following late surgery
  • Outpatient therapy/procedures (unless there is documentation that the patient's condition is unstable)
  • Normal postoperative recovery time following surgery
  • Stays for the convenience of the patient, family or doctor
  • Stays prior to an outpatient surgery procedure

Hopkin's update | November, 2018:

TMF who? Yeah, it looks like they have evolved into a different kind of QIO since the Spring of 2013 when Dr. Meyerson’s original article was written as the only Beneficiary and Family Centered Care (BFCC)-QIOs in action now are Livanta and KePRO when it comes to hospitals. The points given above still ring true, though, when it comes to situations which would not be appropriate for Observation hours.


Original article | March, 2013:

TMF even supplied a list of typical postoperative problems that warrant observation:

  • Persistent nausea/vomiting
  • Fluid/electrolyte imbalance
  • Uncontrolled pain
  • Dysrhythmias
  • Excessive/uncontrolled bleeding
  • Psychotic behavior
  • Unstable level of consciousness
  • Deficit in mobility/coordination

Hopkin's update | November, 2018:

This is helpful, too, and still applicable over five years later. Remember that ANYTHING which requires additional assessment, care, or treatment beyond routine recovery = Observation order should be placed by the physician. The list above only scratches the surface of reasons why a patient might be appropriate for Observation.


Original article | March, 2013:

(Read the entire TMF publication online at http://hpmp.tmfhqi.net/LinkClick.aspx?fileticket=Tgsvof7uV3c%3D&tabid=522&mid=1248).

So what should a surgeon or proceduralist do if no adverse event has occurred, but the physician wants to extend monitoring because the patient is at risk for complications or may not recover as expected due to age, frailty or comorbidities? The proper approach would be to use overnight recovery in an outpatient bed. There would be no need to order observation because an adverse event did not occur; the physician may order observation only after such an event, and the medical record must indicate clearly the reason that observation was medically necessary. A surgeon concerned about the risk of complications properly would order extended recovery, monitor the patient overnight (as an outpatient in a bed or OPIB) and either release the patient the next day or order observation (or admission) if a complication does occur.


Hopkin's update | November, 2018:

This paragraph still rings true, but I’d like to point out that supporting the term “extended recovery” can be a slippery slope. Many institutions used this designator interchangeably with “Observation” or “23-hour Observation” back in the days when needing 24 hours or more of hospitalization equalled Inpatient status. I have found that sticking with “Inpatient,” “Observation,” and “Outpatient in a Bed” makes things much clearer.



 

Original article | March, 2013:

It's ironic, and somewhat illogical, that a patient may be admitted to the hospital as an inpatient prior to surgery for what ordinarily would be an outpatient procedure if the surgeon is concerned about a high risk of complications due to the patient's clinical condition or past history, but the surgeon would not order observation based on a similar risk assessment after the operation or procedure.


Hopkin's update | November, 2018:

Which is exactly why, almost five years later when the 2018 OPPS Final Rule came out about including direction about total knee arthroplasties which were taken off the Inpatient only list, there was such angst and gnashing of teeth. Everything old truly is new again….


Original article | March, 2013:

Some surgeons are uncomfortable placing a patient in an outpatient bed overnight following surgery without ordering observation. They should be reassured that this is not a quality or safety issue. The same monitoring and treatment may be ordered for a patient in overnight recovery as for a similar patient who has observation services ordered. Some also are concerned about the financial implications, and feel that if they order observation, "at least the hospital gets paid." Unfortunately, this is not the case. Contrary to CMS policy which provides for payment to the hospital for observation services for a patient placed into observation from the ED or from a physician's office, "if a hospital provides a service with status indicator 'T' on the same date of service, or one day earlier than the date of service associated with HCPCS code G0378 (used to denote observation hours), the composite APC 8003 (used to bill the observation stay for patients placed into observation from the ED) would not apply ... HCPCS code G0378 will continue to be assigned status indicator 'N,' signifying that its payment is always packaged." In other words, if a patient has an outpatient procedure (status indicator "T" on CMS Addendum B) the hospital does not receive any additional payment for observation. It is "packaged" into the APC payment for the procedure whether observation is ordered or not for that particular patient. (OPPS Final Rule, Nov. 1, 2007, CMS-1392-FC.)


Hopkin's update | November, 2018:

These days, instead of APC 8003 we have C-APC 8011 to bill Observation stays. But they are still separated from an Outpatient procedure with status indicator “T” on CMS Addendum B and there is no additional payment given to the hospital for the observation services. This does not mean there is no reason to pursue an order for Observation services when appropriate.

Remember that for quality tracking purposes, including assessment of length of stay, it’s important to identify which patients followed a regular and routine recovery pathway, and which did not. Also, while Fee-for-Service Medicare does not provide additional payment for observation services in these cases, your other payors likely do.


Original article | March, 2013:

Notice that the TMF list of situations in which observation would not be appropriate includes "stays prior to an outpatient surgery procedure." It follows that observation cannot be used for a prep of any kind, including, for example, preoperative hydration or cardiac assessment, bowel prep or "renal protection protocol." Nor can observation be based on time spent in recovery. Observation is properly used only if an intra- or post-op procedure complication actually occurs.


Hopkin's update | November, 2018:

I’d like to interject here with an example of a rare instance where pre-hospitalization for observation services before a procedure would be justified. Mind you, this is the only case I have seen in almost five years of serving as a physician advisor, but it demonstrates that it IS a possibility. The patient, a brittle Type 1 diabetic, was scheduled for a colonoscopy.

The gastroenterologist was concerned because when the patient prepped at home for the same procedure just a year before, she developed profound hypoglycaemia to the extent she required emergency care and subsequent hospitalization for stabilization. In this case, the patient truly required pre-hospitalization not simply to carry out the GI prep, but to administer IV fluids with dextrose and closely monitor her blood glucose levels for active treatment either with adjustments to the fluids, or adjustments to her insulin administration.


 

Original article | March, 2013:

If surgery or a procedure interrupts observation and the patient returns to the observation bed for continued evaluation or short-term treatment and there is still a question of whether the patient will have to be admitted, observation would continue – but the time the patient was under "active monitoring" in the operative suite (including routine recovery in PACU) would be carved out for billing purposes.


Hopkin's update | November, 2018:

This remains true.


Original article | March, 2013:

So far, RAC auditors have not paid a lot of attention to the use of observation. With respect to postoperative observation, since there is no additional payment, there would be no incentive for an auditor paid on a contingency fee basis to bother auditing these records. However, there is reason to be concerned about proper use of observation for surgical patients, since Medicare requires accurate billing even if there is no payment rendered. In its 2012 and 2013 Work Plans, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) outlines a focus on "observation services during outpatient visits."

"We will review Medicare payments for observation services provided by hospital outpatient departments to assess the appropriateness of the services and their effect on Medicare beneficiaries' out-of-pocket expenses for health care services," the precise language reads. So even though there is no significant effect on Medicare beneficiaries' out-of-pocket expenses for post-operative observation, if the OIG investigates a hospital's use of observation due to an excessive number of such claims filed as compared to peers, the hospital could face a compliance challenge if the review reveals inappropriate and/or excessive use of observation.


Hopkin's update | November, 2018:

For the purposes of this article, I did not investigate the outcome of the OIG work plans in 2012 and 2013 mentioned above. Looking at the active work plan items on the OIG website involving “observation,” there is only one involving hospital care from November of 2016 titled Medicare Payments for Transitional Care Management. But this involves care management services provided to patients moving from a hospital, partial hospital, or skilled nursing facility to the community setting and not specifically observation services provided in the hospital setting.


Original article | March, 2013:

Considering the limited circumstances under which postoperative observation is appropriate, and the lack of reimbursement for the service, hospitals would be wise to monitor the use of observation in these patients and ensure that when observation is billed there are documented postoperative complications – and that observation is not used for preoperative preparation or for routine postoperative recovery.


Hopkin's update | November, 2018:

Agreed! If your hospital’s surgeons and proceduralists continue to place patients into Outpatient with Observation services for routine post-operative care, that’s a situation which needs to be addressed. Conversely, education is also imperative to ensure justified Observation hours are captured and billed. From your physicians, to the bedside nurses, to the case managers, do they know when an Observation order should be entered? Make it a point to ask around…you might be surprised what you find.


About the Author

Original Article:

Steven J. Meyerson, MD, is vice president of the Regulations and Education Group ("the REGs group") for AccretivePAS®. He is Board Certified in Internal Medicine and Geriatrics. Before joining Accretive Physician Advisory Services in 2010 he served as the medical director of care management at Baptist Hospital in Miami, Florida. He has distinguished himself by contributing to the development of innovative service lines and managing education on Medicare regulatory compliance for AccretivePAS®.

Updated by:
 
Juliet B. Ugarte Hopkins, MD, CHCQM-PHYADV, is a physician advisor for case management, utilization, and clinical documentation at ProHealth Care, Inc. in Wisconsin. Dr. Ugarte Hopkins practiced as a pediatric hospitalist for a decade. She was also medical director of pediatric hospital medicine and vice chair of pediatrics in Northern Illinois before transitioning into her current role. She is the first physician board member for the Wisconsin chapter of the American Case Management Association (ACMA), a member of the board of directors for the American College of Physician Advisors (ACPA). Dr. Ugarte Hopkins also makes frequent appearances on Monitor Mondays and is a member of the RACmonitor editorial board.

 

Contact the Author

smeyerson@accretivehealth.com

To comment on this article please go to editor@racmonitor.com

Medicare Audit Improvement Act Introduced As Delegates Descend on Capitol

Steven J. Meyerson, MD, CHCQM-PHYADV

Steven Meyerson, MD, CHCQM-PHYADV, is the founder of Steven Meyerson Consulting. Dr. Meyerson is a nationally recognized expert and consultant in the physician advisor role, case management, and hospital Medicare compliance. He is board certified in internal medicine and geriatrics and serves on the board of the American College of Physician Advisors (ACPA). He edits and writes for the ACPA online blog.

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