CurrentKaiser PermanentePolicy N/A

Clinical Review Criteria — Observation Level of Care

Criteria and processes governing use of outpatient observation services for Kaiser Permanente of Washington members, including ordering, duration limits, conversion to inpatient status, and MOON requirements; applies to providers and facilities delivering observation care.

Policy Summary

PayerKaiser Permanente

PolicyObservation Level of Care (Clinical Review Criteria)

Policy CodePolicy N/A

Change TypeNo material changes

Effective DateApr 4, 2017

Next Review DateNov 5, 2024

Key ActionOrder and document 'admit to observation' (electronically signed) and request a coverage determination if observation will exceed 48 hours for non-medical reasons.

SourceLink

POLICY UPDATE CHANGES

No material clinical or coverage changes in this revision.

48 hoursusual maximum observation span before further services may be denied

36 hoursMOON must be provided no later than

24 hoursMOON issued when observation services exceed

CMS Two-Midnight Ruleguidance referenced for determining observation vs inpatient

Observation Coverage and Conversion Criteria

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Observation coverage and conversion criteria

Observation services are covered when ALL of the following are met:

Observation ordering and intent: A physician (or authorized clinician) orders observation care specifying 'admit to observation' or 'observation status' and signs the order electronically; the patient's presenting medical condition requires services that are reasonable and necessary to evaluate the condition or determine the need for possible inpatient admission.

Order and documentation requirements per KP policy

Location and services: Observation is defined by the specific services provided (assessment, short-term treatment, reassessment) and may be delivered in any hospital location (e.g., ED, recovery room, telemetry, medical floor); it is not defined by physical location. MCG Care Guidelines and the CMS Two-Midnight Rule may be used as guidance.

Duration expectation: In most instances disposition (discharge or admission) occurs within 48 hours (usually <24 hours); observation stays longer than 48 hours are rare and require justification or a coverage determination.<=48 hours typical

See MOON and coverage determination rules

Conversion to inpatient status must meet medical necessity for admission, be documented at the time of conversion, and be supported by a physician's order stating 'admit to inpatient status' that is electronically signed.

Changes in status must be supported by medical records

Medicare does not consider use of observation as a convenience for the patient, the patient’s family, or the physician. Examples of inappropriate use include retaining a patient in observation solely because of transportation issues or because a procedure could not be scheduled in a timely manner. Such situations do not meet the intent of observation services and would not qualify for coverage as medically necessary observation care.

If a patient remains in observation care for 48 hours without being admitted as an inpatient, further observation services may be denied as not reasonable and necessary for the diagnosis or treatment of illness or injury. Retention beyond this 48-hour threshold requires clinical justification and, when appropriate, a coverage determination.

Provider Responsibilities and Notifications

Prior Authorization

Coverage determination required for >48-hour non-medical observation

If the attending physician intends to place or retain a patient in observation care longer than 48 hours for a non-medical reason, or because the patient/family cannot make other arrangements, request a coverage determination from the Health Plan before continuing the stay.

Applies when observation > 48 hours for non-medical reasons
Coverage determination (prior authorization) required to confirm approval or denial

Documentation Required

Notification of Care Management required for verbal-order status changes

If the KP Physician changes admission status via a verbal order to a Care Management Liaison Nurse (CMLN), the verbal order must be subsequently signed by the KP Physician and the Care Management department must be notified.

Verbal orders to a CMLN must be signed later by the KP Physician
Notification of Care Management department is required when status is changed this way

Documentation Required

KP Physician order must specify 'admit to observation' and be electronically signed

The KP Physician's written order must explicitly state 'admit to observation' and be electronically signed. Ensure the history & physical documents the medical intent, presenting condition, and plan supporting observation-level care.

Order must read exactly: 'admit to observation'
Order must be electronically signed by the KP Physician
History & physical must document severity of illness and plan for observation/treatment

Denial Risk

Retention in observation for 48 hours without inpatient admission may lead to denial risk

Retention in observation beyond 48 hours without inpatient admission may be denied as not reasonable and necessary. Providers should reassess and document medical necessity; obtain a plan or coverage determination if continued observation is anticipated.

Risk of denial if observation extends past 48 hours without inpatient admission
Document medical necessity at conversion or when extending observation
Obtain coverage determination for non-medical extensions

Background on Observation Care

Observation care is a short-term, well-defined set of clinically appropriate services provided to assess, treat, and reassess a patient to determine whether inpatient admission is required or whether the patient can be safely discharged. Observation is defined by the services delivered — not by physical location — and may occur in the ED, recovery room, telemetry unit, medical floor, or other hospital areas. Clinical guidance such as the CMS Two-Midnight Rule and MCG Care Guidelines may be used to assist the admitting physician in determining when observation is appropriate.

Definitions

Observation care — definition and components

DefinitionObservation care is a well-defined set of clinically appropriate services including ongoing short-term treatment, assessment, and reassessment to determine need for inpatient admission or discharge.

Who may orderCovered when provided by order of a physician or another individual authorized by state licensure and hospital bylaws to admit patients or order outpatient tests.

PurposeUsed to evaluate patients who present (commonly from the ED) and require a significant period of treatment or monitoring to decide admission versus discharge.

Admission Criteria for Hospital/CAH Observation

hospital/CAH — admission criteria (top-level node)

Admission to observation is allowed when ALL of the following are met:

Admission to observation: The attending/admitting physician, using clinical judgment and guidance such as the CMS Two-Midnight Rule or MCG, admits the patient to observation status; the physician's order must state 'admit to observation' and be electronically signed; the history and physical must document the medical intent, presenting severity, and plan for observation/treatment.

Continued Stay Criteria for Observation

hospital/CAH — continued stay criteria (top-level node)

Continued observation is covered when ALL of the following are met:

Continued observation: Disposition is generally achieved within 48 hours; if retention beyond 48 hours occurs for non-medical reasons (for example, inability of patient/family to arrange care), a coverage determination must be requested from the Health Plan; Care Management (CMLN/UM) will review and communicate status decisions and must notify the hospital UM office within 24 hours of hospital services beginning or time of notification.<=48 hours typical

MOON requirements and timeliness rules apply

Discharge Criteria

Patients may be discharged from observation when the goals of assessment and short-term treatment have been met and no inpatient admission is indicated. The attending physician uses clinical judgment (with guidance from CMS Two-Midnight Rule/MCG as needed), documents the intent and plan in the history and physical, and issues the appropriate orders. The physician’s order must state "admit to observation" and be electronically signed; when discharge criteria are met and the patient’s condition has improved, the patient may be released from observation.

Observation Day Limits and Typical Durations

Observation services — expected stay and disposition timing

Resolution timeframeIn the majority of cases, decision to discharge or admit can be made in less than 48 hours and usually in less than 24 hours.

Usual disposition windowMost observation stays are resolved within 24 hours; disposition is usually implemented within 48 hours.

>48 hours guidanceOutpatient observation care spanning more than 48 hours is rare and exceptional; such stays require justification and may need coverage determination.