CurrentEmblemHealthPolicy RPC20240054

Observation Stay - (Commercial)

Governs reimbursement and billing for hospital outpatient observation services for EmblemHealth Commercial products, including documentation, billing codes, duration limits, and notice requirements that affect hospitals and facility billing.

Policy Summary

PayerEmblemHealth

PolicyObservation Stay - (Commercial)

Policy CodePolicy RPC20240054

Change TypeIncludes state notice rulesscope clarifiedreimbursement guidance clarified

Effective DateNov 14, 2024

Next Review Date

Key ActionPhysician must write and document an 'Admit to Observation' order and document the need for observation including problem, treatment and frequency of skilled service.

SourceLink

POLICY UPDATE CHANGES

Updated to include NYS Regulations regarding patient notification on 'Observation Status'.

Policy expanded to include EmblemHealth Commercial effective 11/14/2024.

Updated reimbursement guidelines 'inpatient admissions following observation stay' section with clarity regarding emergency services.

48maximum reimbursable observation duration

8minimum observation duration to be eligible

G0378,G0379HCPCS codes required

Trek Health ingests and normalizes Transparency in Coverage data and payer policy updates to give provider organizations a clear view of how commercial reimbursement behaves across markets, payers, and services. Our platform transforms raw payer disclosures into structured intelligence that supports contract evaluation, payer negotiations, and service line strategy. By combining market benchmarks with ongoing policy visibility, Trek helps teams identify variability, risk, and opportunity in commercial reimbursement. The result is faster insight, stronger negotiating positions, and more informed financial decisions.

required notification form

RevCode762includes nursing/ancillary unless contract states otherwise

Coverage criteria and billing rules for Observation Services

Eligible clinical scenarios

Observation Services may be eligible when one or more of the following clinical scenarios apply:

ANY of the following

Active care or further observation is needed following emergency room care to determine if the member is stabilized.
Member has a complication from an outpatient surgical procedure that requires additional recovery time that exceeds the usual 4-6 hours recovery period.
The physician or nursing care that a member needs initially is at or near the inpatient level, but such intense care is expected to be necessary for less than 48 hours.
Member requires further diagnostic testing and/or observation to make a diagnosis and establish appropriate treatment.
Short term medical intervention of facility staff is required under the direction of a physician.
Observation is needed to determine if hospitalization is required.

Exclusions

Services not covered as Outpatient Observation Services include:

ANY of the following

Observation services with less than 8 hours or that exceed 48 hours.
An observation claim within 30 days of an inpatient discharge that, upon review, is deemed to be medically related (see Hospital Readmission Reimbursement Policy).
Services provided for the convenience of the patient, family, or patient's physician, and not reasonable and necessary for diagnosis or treatment (examples: observation following an uncomplicated treatment or procedure, waiting for a physician visit when the patient is physically ready for discharge, or holding in observation while awaiting placement in a long-term care facility).
Postoperative monitoring during a standard 4-6-hour recovery period (should be billed as recovery room services).

Billing rules and inpatient conversion

Billing and conversion rules:

ALL of the following

Observation stay is an outpatient alternative to an inpatient admission; time in observation begins with the beneficiary's admission to observation and billed units should equal the number of hours the patient receives observation services.
Observation stay is expected to resolve within 24 hours but may extend up to 48 hours; there will be no reimbursement for observation services more than 48 hours without a discharge or admission.
When emergency department services precede an observation stay, emergency department services are incidental to the observation stay and therefore are not separately reimbursed (unless otherwise stated in the facility's participation agreement).
Reimbursement for Observation Services (Revenue Code 762), unless contract states otherwise, includes nursing care, ancillary services, and any Emergency Department services that preceded an observation stay; all claims must include the number of hours.

Observation status notices

Patient notification requirements:

ALL of the following

Hospitals must provide oral and written notice to patients assigned to observation status; written notice must be provided within 24 hours of assignment to observation status and must be signed by the patient or the patient's legal representative, or documentation of refusal must be recorded in the medical record (per NY PHL Section 2805-w).
The written notice must state at minimum that observation status may affect the patient's Medicare, Medicaid and/or private insurance coverage for the current hospital stay (including medications and pharmaceutical supplies) and potential implications for subsequent discharge to a skilled nursing facility, home, or community-based care; it should encourage the patient to contact their insurance plan for specifics (NY requirement).
For Medicare beneficiaries (and equivalent for Commercial plans), hospitals and CAHs must provide the standardized Medicare Outpatient Observation Notice (MOON), form CMS-10611, or an equivalent, to individuals receiving observation services as outpatients for more than 24 hours; the notice must include reasons for observation status and the implications for care eligibility and cost sharing.

Codes, limits, and billing thresholds

Observation HCPCSHCPCSCovered

G0378	Hospital observation service, per hour
G0379	Direct admission for observation care

CPT codes not to report for observationCPTNot Covered

99221-99223	Initial hospital inpatient care (do not report for observation services)
99231-99239	Subsequent hospital care (do not report for observation services)

inv-07: Maximum observation hours

Maximum reimbursable observation duration48 hours (no reimbursement for observation services more than 48 hours)

Policy alignmentEmblemHealth aligns with CMS and does not cover observation services that extend beyond 48 hours

Billing consequenceObservation services billed over 48 hours will be considered as exceeding limits

inv-08: Minimum observation hours to be billed as observation

Minimum duration to qualify as observation8 hours (observation services with less than 8 hours will be considered a bundled service)

Non-covered short stays

Provider orders, documentation, and appeals

Documentation Required

Physician order and documentation required

The member's medical record must include a written physician order clearly documenting 'Admit to Observation' and must state the specific problem, treatment and/or frequency of skilled services. Change in patient status (e.g., need for admission or discharge) must be indicated by a physician order and documented in the medical record. All claims submitted for Observation Status must include the total number of observation hours.

Physician order: must state 'Admit to Observation'.
Medical record: document specific problem, treatment, procedures, frequency of skilled service, and clinical rationale for observation.
Documentation: update and document any change in patient status with physician order.
Claims: submit total observation units (hours) as one claim line.

Denial Risk

Appeal process for observation denials > 48 hours

Key definitions used in this policy

inv-11: Observation Stay

DefinitionObservation Stay is an outpatient alternative to an inpatient admission that allows reasonable and necessary time to evaluate and render medically necessary services when diagnosis and treatment are not expected to exceed 24 hours but may extend to 48 hours

Order requirementRequires a written physician order documented in the medical record indicating 'Admit to Observation'

DocumentationMedical record must indicate the specific problem, treatment and/or frequency of the skilled service to justify observation status

inv-12: Observation hours

Observation hours definitionTime in observation begins with admission to an observation bed and ends when all clinical or medical interventions have been completed; billed units should equal the number of hours the patient receives observation services

Policy Summary

PayerEmblemHealth

PolicyObservation Stay - (Commercial)

Policy CodePolicy RPC20240054

Change TypeIncludes state notice rulesscope clarifiedreimbursement guidance clarified

Effective DateNov 14, 2024

Next Review Date

Key ActionPhysician must write and document an 'Admit to Observation' order and document the need for observation including problem, treatment and frequency of skilled service.

SourceLink

On This Page

Routine preparation and recovery services furnished in association with diagnostic testing (included in payment for those diagnostic services).

Observation services billed concurrently with therapeutic services such as chemotherapy or other transfusion.

Standing orders for observation following outpatient surgery (availability of outpatient observation does not imply certain procedures with anticipated overnight stay may be performed outpatient).

Services ordered as inpatient services by the admitting physician but billed as outpatient by the hospital billing office.

Claims for inpatient care such as complex surgery that meet inpatient criteria but are billed as outpatient.

Observation care services submitted with routine pregnancy diagnoses.

Retaining a member for socioeconomic factors.

Observation services related to an ambulatory surgical or other outpatient procedure that are part of the routine recovery period for the procedure are not separately reimbursed as observation.

Case rate and DRG-based reimbursement includes related emergency services and observation services that occur within three days of the date of admission; per diem and percent-of-charge arrangements include any emergency services and observation stay that converts to an inpatient admission and these are not separately reimbursed.

The hospital will not be reimbursed for both observation room charges and room & board fees on the same day.

The MOON (or equivalent) must be delivered no later than 36 hours after observation services are initiated or sooner if the individual is transferred, discharged, or admitted; hospitals were required to provide this notification no later than March 8, 2017.

Observation services with less than 8 hours are not covered as outpatient observation services

Billing consequenceServices under 8 hours should be treated as bundled/ED services rather than billed separately as observation

If an observation claim is denied because the total observation hours exceed the 48-hour maximum, the facility may appeal the denial. Appeals must include complete medical records that support the medical necessity for observation beyond 48 hours, including physician orders, progress notes, diagnostic test results, and any documentation of clinical change or complications that justify extended observation. Observation stays that are less than 8 hours are not considered observation and will be paid under the applicable contracted rate (for example, Emergency Room).

Appeal right: facilities may appeal denials for observation stays > 48 hours.
Required appeal documentation: complete medical record including physician orders, progress notes, diagnostic results, and justification for extended observation.
Billing note: observation stays < 8 hours are not considered observation — billed/paid per applicable contracted rate.
Claiming: bill total observation hours as a single claim line.

Reporting requirement

All claims submitted for Observation Status must include the number of hours

Coding guidanceHospitals should use HCPCS codes G0378 and G0379 to report observation services and direct admission for observation care; do not report CPT 99221-99223 or 99231-99239 for observation services