Compliance Confusion: Observation Coding

I wonder how many millions of dollars are lost due to coding errors that have nothing to do with ICD-10 but everything to do with complex and confusing requirements and new rules. I’ve said this before: I don’t believe folks make mistakes intentionally, especially when it impacts reimbursement, but I think there is a lot of coding compliance confusion. And, in my humble opinion, it’s not the coders “fault” when errors are encountered.

I understand that payers need to change regulations to try and improve processes and compliance. But when they come up with radically different ways of coding the same services it can be enormously disruptive to the industry. I believe payers do not appreciate how difficult it is to change an ingrained behavior – AKA habit. Habit, according to, is a “usual way of behaving: something that a person does often in a regular and repeated way.” Our brains become hardwired to repeat certain behaviors like eating a bowl of peach ice-cream every night during the summer or not feeling a dinner in a restaurant is complete without an espresso.

For coders, much of their day is built on habit. They are trained to repeat the same behaviors when reviewing records to assign codes – this is coding standardization. For coders, good habits are important for accuracy, so when a payer says, “As of January 1, 2014 we are going to change everything when coding observation” a lot of coding errors should be expected.
Let’s take a moment to look more closely at the fine print: Before January 1, 2014, coders assigned Emergency Department (ED) Evaluation and Management (E&M) codes to both the facility (hospital) and professional (provider) portion of the claim (if the hospital bills for its ED physicians and NPs). The CPT range for ED visits is 99281-99285 and has been for years (habit). In fact, auditors were trained to expect the same CPT code for both the facility and professional codes for ED services (habit).

With the increase in observation stays, CMS added an entirely new set of codes for provider ED visits for observation patients; the new range is 99217, 99218-99226 and 99234-99236. So, if observation is ordered, then coders are to assign the new 99218-99226 or 99234-99236 range and not the 99281-99285 range (broken habit). But this only applies to patients with observation orders – all other ED patients are to be coded in the 99281-99285 range (broken habit). The coding requirements get more complicated for observation since they are not only dependent on the key E&M elements but on time and admission/discharge date parameters as well.

Prior to 2014, the ED facility and professional services used the same E&M code range (habit) and the level assigned on the facility side usually mirrored the professional code. Now, when observation services are ordered for a Medicare patient, a 25 modifier must be appended to the faculty E&M code (only when the patient spends at least eight hours in observation) but not the professional code. And the code ranges must be completely different (broken habit).

CMS added the observation facility G codes to represent the number of hours the patient stays in observation that must be reported along with the facility E&M code (plus the 25 modifier – but no modifier is required on the facility side if the G code is not reported – confused yet?). There is even a special G code for “direct admit to observation” when a patient is first seen in the provider’s office and that provider sends the patient to the ED for the purpose of observation services. In addition, there are many different rules that impact how to calculate “time” in order to assign the correct G code.

Now, coders have to look at electronic records and try to add up the amount of hours a patient was in the ED observation area in order to know which G code to use (new task and habit to form). And the records are none too friendly to work with. Each entry in the record is time stamped with the identification of the individual making the entry. But there really is no time clock that tracks the number of minutes – or hours – the patient actually spent in ED observation status (once the order is written versus the time the patient arrives in the ED). When a patient leaves the ED for diagnostic tests not accompanied by an RN, the clock stops and the time off floor cannot be used to calculate the time needed to assign the correct G code. Perhaps EMR vendors did not see the OPPS rule changes for 2014? If they had, I wonder why they didn’t modify their systems to assist coders in the new compliance requirements.

Due to the complexity and new rules, I am not at all surprised when coders assign the same ED CPT codes for both facility and professional services (habit), forget to add a 25 modifier (trying to learn a new habit), miscalculate time in ED OBS and assign a G code for observation to every case – even though it’s not clear which payers other than CMS require the code (trying to learn a new habit).

So, what can you do to improve compliance? First, forgive your coders; they are doing the best they can with dropping old habits and learning new ones. I suggest getting an “outside” auditor to take a look at some observation stays. They are trained to recognize issues quickly and are great educational resources to help your coders create new habits.

I don’t have enough space to talk about medical necessity in observation today – maybe next month.

Want to learn more about medical necessity? Attend a free webinar to discover best practices for managing medical necessity in your organization.

Barbara Aubry is a regulatory analyst for 3M Health Information Systems.

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