Hospital Observation Payment Policy and ED Facility E&M Coding Update
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Defines McLaren Health Plan's reimbursement, authorization, and claims review rules for hospital observation services and revised Emergency Department (ED) facility E&M coding enforcement, effective 1/1/2025, affecting providers billing McLaren Health Plan Medicaid.
McLaren Health Plan is implementing a Hospital Observation Payment Policy effective 1/1/2025.
Revised Emergency Department Facility E & M Coding Policy effective 1/1/2025 to use Optum EDC Analyzer to deny unsupported ED facility level-of-service claims.
Observation and Inpatient Reimbursement Criteria
Observation and inpatient reimbursement criteria
Covered when the following rules and conditions are met:
ALL of the following
ALL of the following
ALL of the following
- Observation stays do not require prior authorization.
- Observation stays are generally 48 hours or less and must be medically necessary.
- For calculation of the 48-hour period, time starts when the patient is placed in a bed for the purpose of initiating observation care; observation services should be billed as observation.
- McLaren will reimburse medically necessary observation services less than 48 hours without an authorization.
ALL of the following
- Providers must submit accurate claims using valid code combinations; claims are subject to edits and review.
- Facilities may timely rebill at an observation level of care if appropriate.
ALL of the following
ALL of the following
- Inpatient stays require prior authorization and requests for inpatient level of care will be reviewed against McLaren clinical criteria.
- If the facility received an approved authorization for an inpatient stay, the claim will be approved and paid at the inpatient level of care.
ALL of the following
- McLaren will reimburse inpatient stays less than 48 hours only for listed exclusions (see exclusions node) or if an inpatient authorization was approved.
- Inpatient stays billed and paid that are less than 48 hours are subject to retrospective review; authorization is not a guarantee of payment.
ALL of the following
ONE of
- Deliveries (APR DRGs 540-5404, 5411-5414, 5421-5424, 560-5604)
- Nursery/Newborns and neonatal services (APR DRGs 630-64041; APR DRGs 580-62641)
- ICU revenue codes 0200-0209
- Diagnosis codes Z37-Z37.7 or Z38-Z38.8 (births)
- Discharge status 20 (patient expired)
- Other listed policy/code-based exceptions such as CMS Inpatient Only codes and referenced bulletins (e.g., MSA Bulletin 15-32).
ALL of the following
- McLaren or a third party may audit or review paid inpatient claims for coding validation, payment accuracy, medical necessity, compliance with regulations, policies, and contract terms.
- McLaren reserves the right to review and/or deny claims for reasons including ineligible member or not medically necessary; authorization does not guarantee payment.
ALL of the following
- ED facility E&M levels will be evaluated using presenting problems, diagnostic services, and patient complexity based on submitted codes; unsupported levels may be denied and providers should rebill within the specified timeliness window.
ALL of the following
- Providers are required to submit accurate claims and documentation for all services performed and to work promptly with McLaren or third parties to provide requested information.
ED Facility E&M Coding and Exclusions
| 0200-0209 | ICU revenue codes |
| Z37-Z37.7 | Delivery diagnosis codes |
| Z38-Z38.8 | Newborn birth codes |
Authorization, Billing and Documentation Requirements
Prior authorization: observation vs inpatient
- Observation stays do not require prior authorization; observation services must be medically necessary and are generally 48 hours or less. Facilities may submit updated clinical information at 48 hours for consideration. Authorization approval does not guarantee payment.
- Observation stays are those hospital services that are generally 48 hours or less in nature and should be billed as observation services.
- All inpatient stays require prior authorization; requests for inpatient level of care are reviewed against McLaren clinical criteria (e.g., InterQual).
- Facilities may submit updated clinical information at 48 hours for consideration; obtaining authorization does not guarantee payment.
ED facility E&M denials and 90-day rebill window
- McLaren will implement Optum EDC Analyzer to identify and deny ED facility claims where the billed level of service is not supported by the claim; denied claims will carry internal denial code C679 and remittance CARC/RARC codes indicating the information does not support the billed level. Providers should rebill facility ED claims within 90 days with the appropriate level of service.
- Optum EDC Analyzer will consider presenting problems (ICD-10 reason for visit), diagnostic services performed (diagnostic CPTs), and patient complexity/co-morbidity when evaluating ED facility E&M levels.
- Applicable ED facility codes evaluated include 99282-99285 and G0381-G0384.
- Internal denial code: -C679; Remittance CARC -150 and RARC -M26; providers must refund patient overpayments per RARC guidance when applicable.
Provide complete clinical and billing documentation for reviews and rebills
- Facilities must supply sufficient documentation to support claims and audits, including complete medical charts, itemized bills, and consent forms; McLaren or its third parties may audit and deny claims for lack of documentation, incorrect coding, ineligibility, or lack of medical necessity. Authorization approval does not guarantee payment and paid inpatient claims remain subject to retrospective review.
- Documentation required for reviews and rebills includes complete medical charts, itemized bills, and consent forms.
- Inpatient stays billed and paid that are less than 48 hours are subject to retrospective review; McLaren may audit paid inpatient claims for coding validation and payment accuracy.
- McLaren has the right to review, audit, or deny claims based on benefit limitations, exclusions, eligibility, correct coding, billing practices, and McLaren payment policies.
Key Definitions
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