Advancements in Coding Hospital Observation Care Services in 2023

by  Aimee L. Wilcox, CPMA, CCS-P, CST, MA, MT
Jul 4th, 2023

In recent years, healthcare regulations have undergone significant changes to enhance transparency, quality of care, and reimbursement accuracy. These changes have directly influenced coding practices for emergency department, observation care, and inpatient hospital services. In 2023 coding guidelines have become more specific ensuring accurate documentation and appropriate billing for these services and, in some cases, have also simplified them.

Updated Evaluation and Management (E/M) Guidelines

In 2023 substantial updates to the Evaluation and Management (E/M) guidelines were made to the remaining E/M services, mainly inpatient services. The revisions have focused on reducing administrative burden, improving documentation efficiency, and better reflecting the complexity of patient encounters. These changes have provided a more comprehensive framework for accurately coding observation care services, such as: 

• Deletion of the code for reporting Observation Care Services (99218-99220, 99224-99226)
• Reporting Observation Care services using the Inpatient E/M service codes (99221-99223 and 99231-99233)

While the guidelines instruct us to report these codes, which are inclusive of inpatient E/M services, observation care services are still considered outpatient services, requiring the correct, outpatient place of service code (POS 22).

The coding manual instructs coders to report codes 99251-99255 (inpatient consultation codes) for patients who receive a consultation while in observation care status; however, if the patient's insurance does not reimburse for consultations (e.g., Medicare, United Healthcare), then since this is still an outpatient service, codes 99202-99215 should be reported by the consulting provider.

Only the admitting physician or other qualified healthcare practitioner (QHP) can report the 99221-99223 and 99231-99233 (the new observation care services) codes for the patient who is under observation but should be sure to apply any payer-specific guidelines, such as the two midnight rule. Of note, any Medicare patient who is placed under observation will have their Medicare Part B benefits applied, which means they will have an applicable deductible and coinsurance to be concerned with for that stay. If they are hospitalized, the inpatient or Medicare part A benefits will apply, which means significantly less out-of-pocket expenses for them. As such Medicare has a rule that requires the patient, prior to being transferred from the emergency department to observation care status or from the observation care status to a nursing facility to be notified in writing that they are receiving outpatient services, which means their Medicare Part B deductible and coinsurance will apply and may not cover the nursing facility services. 

Advanced Electronic Health Record (EHR) Systems

With the widespread adoption of advanced Electronic Health Record (EHR) systems, the coding process for hospital observation care services has been significantly streamlined and most EHR systems now offer built-in coding tools and templates that guide healthcare providers in documenting the key components of observation care, such as medical history, physical examination, decision-making, and time spent on patient care. These features ensure that coding accurately reflects the services provided.  Emergency room providers 

Real-Time Clinical Documentation Improvement (CDI)

Real-time Clinical Documentation Improvement (CDI) technologies have emerged as valuable tools for coding hospital observation care services. CDI technologies use artificial intelligence (AI) and natural language processing (NLP) algorithms to analyze clinical documentation in real time, identifying any potential coding discrepancies and providing instant feedback to healthcare providers. CDI technologies enhance coding accuracy and compliance, and reduce the risk of claim denials and unwanted audits.

Enhanced Coding Education and Training

Because of the ever evolving coding landscape, hospitals have begun to focus on improved and detailed education and training for their coding and billing staff. Continuing education courses and workshops on the latest coding guidelines, documentation requirements, and technological advancements have been instrumental tools for improving coding accuracy and ensuring compliance. Well-trained coding professionals are more equipped to navigate the complexities of coding E/M services, like observation care, in 2023. 

Artificial Intelligence (AI) Solutions

Artificial Intelligence (AI) solutions are transforming some aspects of healthcare, especially coding hospital services. AI-powered coding software can analyze patient records, extract relevant information, and with an incredible degree of accuracy, assign the correct codes. While this type of solution can streamline the coding process, it can also reduce errors and free coding staff to work on more difficult coding tasks. 

In 2023, coding looks much different than it has in previous decades, and it appears it will continue to change moving forward. Annual coding changes, ever-changing EHR systems and templates, ongoing CDI improvements, and new and improved AI solutions that require continuing coder education will march on as the way of the future. By leveraging these technological and regulatory advancements, healthcare providers can ensure seamless care delivery, proper reimbursement, and better patient outcomes in whatever setting.

About Aimee L. Wilcox, CPMA, CCS-P, CST, MA, MT

Aimee L. Wilcox is a medical coding, billing, and auditing consultant, author, and educator with more than 30 years of clinical and administrative experience in healthcare, coding, billing, and auditing. Medicine, including coding and billing, is a constantly changing field full of challenges and learning and she loves both. Aimee believes there are talented medical professionals who, with proper training and excellent information, can continue to practice the art of healing while feeling secure in their billing and reimbursement for such care.