Rx2000
Institute
11824 Wayzata Blvd
Minneapolis, MN 55305
Phone: 952-595-9551
FAX: 952-513-1544
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The Health Care Financing Administration
has developed three additional Questions and Answers regarding observation
services in the outpatient setting. These Questions and Answers will be
posted on the Outpatient Prospective Payment System web site during the
week of December 25, but we wanted to provide this information to you now.
Please note that the Questions and Answers will be renumbered when posted
on the web in order to fit in the next sequence of Questions and Answers.
The new Questions and Answers are as follows:
Q. 1.- Is it true that Medicare is opposed to observation of patients in
outpatient settings?
A.1.- No, not at all. Medicare fully supports observation in outpatient
departments where medically necessary and appropriate for quality patient
care. Medicare pays for this service in outpatient departments as
described below. (December 22, 2000)
Q.2.- Is it true that Medicare no longer pays for observation in the
outpatient
departments, for instance for a patient with chest pain?
A.2.- No. Medicare continues to pay for observation, though it does not
make a separate payment for these services. The outpatient prospective
payment system (PPS) pays for observation by "packaging" these
services with other services, such as surgery, that may lead to a period
of observation. For instance, the payment rate for an emergency room visit
includes a portion that represents payment for observation. Hospital costs
for providing operating room, recovery room, nursing services, or supplies
were treated similarly. Thus, when we were setting up the outpatient PPS,
we identified payments for observation in the claims files on which the
system is based and included these payments in the APC payments for
emergency visits, surgery, and similar services. Well over $200 million in
observation costs were "packaged" in this way. (December 22,
2000)
Q.3.- Why did Medicare "package" observation services?
A.3.- We have noted abuse of observation in the past. For instance, in
some
cases observation was used inappropriately, sometimes for days as a
"holding pattern" without appropriately addressing the question
of whether the patient should be admitted or sent home. In 1996 we issued
instructions designed to curtail this practice. (Hospital Manual, HCFA
Publication 10, sections 230.6 and 455.)
In setting up the outpatient PPS, we believed it would be appropriate to
associate these services with the underlying services that preceded the
observation and thus permit caregivers to manage these services within a
single bundled payment. HCFA is reexamining that policy and may provide
for separate payment for certain observation services meeting carefully
specified criteria starting in 2002. (December 22, 2000)
Note: Additional information regarding observation is available in the
answers
to the following questions in the section on Claims Processing/Billing: Q.
16,
Q. 24, Q. 26, Q. 30, Q. 37, Q. 91, Q. 92, Q. 93, Q. 95, Q. 97, Q. 100, Q.
101, Q. 102.
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