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    v1.0.28
    OpenPayerPolicy UpdatesReimbursement/Payment Policycare_continuum Outpatient Observation Coverage Upd…
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    Currentcare_continuumPolicy n05594

    Outpatient Observation Services

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    This policy governs reimbursement and billing rules for outpatient hospital observation services when Medicare coverage criteria are met, affecting providers submitting observation service claims to Care Continuum (Network Health).

    Policy Summary
    Payercare_continuum
    PolicyOutpatient Observation Services
    Policy CodePolicy n05594
    Change TypeRevised (billing/operational guidance)
    Effective DateJan 1, 2017
    Next Review DateSep 10, 2026
    Key ActionSubmit any observation hours over 72 on a separate claim line and be prepared to provide clinical records if requested.
    SourceLink
    POLICY UPDATE CHANGES

    Clarified that observation hours exceeding 72 will be denied and specified CARC 152 for observation billed on a single claim line in excess of 72 hours; providers must submit any overage on a separate claim line and Network Health may require clinical records.

    Changed final-paragraph wording to indicate decision to admit should not be greater than 72 hours and claims submitted greater than 72 hours will be denied.

    8 hrsminimum observation period required for Medicare reimbursement
    72maximum observation hours allowed before denial
    48 hrsusual upper bound for reasonable/necessary observation stays
    CARC 152claim adjustment reason code

    Coverage and Billing Criteria

    Coverage and billing criteria

    Observation services are covered when Medicare criteria are met and services are reasonable and necessary. Coverage and billing follow Medicare-based documentation, timing, and billing rules:

    Covered only when services are reasonable and necessary and meet Medicare coverage criteria.
    Observation care must be initiated and ended in accordance with a physician’s order and documented in the patient’s medical record (registration, discharge and progress notes timed, written and signed by the physician).
    Date of service reported is the date observation care begins; all hours for the entire observation period are counted even if the period spans more than one day; units reported must equal or exceed 8 hours.
    Observation is provided hourly for a minimum of 8 hours; observation services with less than 8 hours are not eligible for Medicare reimbursement and should be billed with the appropriate E/M level.
    Policy Summary
    Payercare_continuum
    PolicyOutpatient Observation Services
    Policy CodePolicy n05594
    Change TypeRevised (billing/operational guidance)
    Effective DateJan 1, 2017
    Next Review DateSep 10, 2026
    Key ActionSubmit any observation hours over 72 on a separate claim line and be prepared to provide clinical records if requested.
    SourceLink
    On This Page
    Coverage and Billing CriteriaCoding and Billing DetailsProvider Responsibilities and DocumentationDefinitions and Observation Reporting

    OpenPayer is powered by Trek Health's payer performance platform. Trek continuously ingests, validates, and normalizes Transparency in Coverage data alongside payer policies and other commercial payer data to create a structured payer intelligence foundation. OpenPayer uses this foundation to deliver personalized search results, dynamically generated policy pages, and tailored policy monitoring based on each user's payers, specialties, billing codes, and areas of interest. The same intelligence powers broader payer performance workflows, including reimbursement benchmarking, contract evaluation, payer negotiations, and financial decision-making.

    Observation should not be billed routinely or concurrently with diagnostic or therapeutic services and outpatient surgery/procedures; if a procedure interrupts observation, the hospital determines how to account for the time.
    No procedure with a 'T' status indicator may be reported on the same day or the day before observation care is provided.
    Observation stays are rarely greater than 48 hours; decisions to discharge or admit are usually made in less than 24 hours and should not exceed 72 hours.
    Observation hours exceeding 72 on a single claim line will be denied; when observation hours exceed 72, providers must submit the overage on a separate claim line. (Denial of a single-line claim >72 hours may be indicated with CARC 152.)
    Network Health may require submission of clinical records before or after payment to identify improper billings and detect suspicious claims; providers should be prepared to furnish documentation supporting observation services and hours billed.

    Coding and Billing Details

    Adjustment code for excessive observation hoursmixed
    CARC 152"Payer deems the information submitted does not support this length of service" - applied when observation billed on a single claim line in excess of 72 hours.
    Minimum billable observation hours
    Minimum billable observation hours8 hours (observation is provided hourly for a minimum of 8 hours; services <8 hours are not eligible for Medicare reimbursement)
    Units reported requirementNumber of units reported must equal or exceed 8 hours
    Billing for <8 hoursObservation services with less than 8 hours should be billed with the appropriate E/M level, not as observation
    Maximum allowed observation hours per claim line
    Maximum allowed observation hours per claim line72 hours (observation hours exceeding 72 will be denied)
    Claim-line overage handlingObservation billed on a single claim line in excess of 72 hours will be denied with CARC 152; providers must submit any overage on a separate claim line
    Potential record requestsNetwork Health may require submission of clinical records before or after payment to identify improper billings and detect suspicious claims when overages occur

    Provider Responsibilities and Documentation

    Documentation Required

    Clinical records and claim submission for observation >72 hours

    Network Health may require submission of clinical records before or after payment to identify improper billings and detect suspicious claims; when observation hours exceed 72, providers must submit any overage on a separate claim line. Claims with observation hours over 72 will be denied and observation billed on a single claim line in excess of 72 will be denied with CARC 152.

    • Observation hours exceeding 72 will be denied.
    • Observation billed on a single claim line in excess of 72 will be denied with CARC 152 ("Payer deems the information submitted does not support this length of service").
    • Provider must submit any observation hours over 72 on a separate claim line.
    • Network Health may request clinical records before or after payment to identify improper billings or suspicious claims.
    Documentation Required

    Physician order and timed documentation required for observation

    Observation services must be initiated and ended per a physician's order and documented in the medical record; the patient must be under physician care with outpatient registration, timed written and signed discharge and progress notes recorded.

    • Physician order required to initiate and end observation care.
    • Medical record must include outpatient registration, discharge and progress notes that are timed, written, and signed by the physician.
    • Date of service reported is the date observation care begins; all hours for the entire observation period are counted and units reported must equal or exceed 8 hours.

    Definitions and Observation Reporting

    Outpatient observation services
    DefinitionOutpatient observation services are hourly monitoring provided under a physician's order and documented in the medical record (registration, discharge and progress notes timed, written and signed by the physician)
    Billing startBilled with the date observation care begins
    Coverage requirementMust meet Medicare criteria and be reasonable and necessary to be covered
    Observation timing/reporting
    Counting hours across daysAll hours for the entire time period of observation are counted even if the period spans more than one day
    Date of service reportingThe date of service reported is the date observation care begins
    Units reported must meet minimumUnits reported must equal or exceed 8 hours