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25.3.3.2 Hospital Outpatient Observation Room Services
Outpatient means a client is in an organized medical facility, and receives, professional services for less than a 24-hour period regardless of the hour of admission, whether or not a bed is used, or whether or not the client remains in the facility past midnight.
Some patients, while not requiring an inpatient hospital admission, may require an extended period of observation (less than 24 hours) in the hospital environment on an outpatient basis. The client is considered an outpatient if he or she remains in the hospital for less than 24 consecutive hours and is discharged to home from an outpatient observation status.
Observation services may be provided in any part of the hospital where a client can be assessed, examined, monitored, or treated.
If a physician's order for outpatient observation is present in the patient's medical record, per 1 TAC §371.206(b), the Texas Medicaid Program considers reimbursement to the hospital for outpatient observation services based on the facility's reimbursement rate.
Hospitals may bill medically necessary outpatient services provided during the initial period of observation on TOB 131. The hospital outpatient observation room service commences with the first clinical contact of the client by professional/licensed staff of the hospital.
Because the unit associated with the observation room charge (B-762) is considered to be hours, claims submitted with observation room units exceeding 23 hours are denied with explanation of benefits (EOB) code 643, Claim indicates outpatient charges in excess of 23 hours. Facilities should resubmit these outpatient claims as appeals with charges for the initial 23 hours only.
Any service ordered within the initial 24 hour period may be included on the outpatient claim if a physician's order for the service is within the observation period time frame but hospital scheduling limitations prevent the service from being performed before 23 hours has expired. Any services ordered after the initial 24 hours must not be included on the outpatient claim nor billed to the client.
To receive reimbursement for physician-ordered services that are medically necessary and exceed the 24-hour period from the initial point of contact, the claim may be submitted as an inpatient stay. All observation room charges, outpatient charges (except ambulatory surgical procedure codes as listed in the current ASC/HASC fee schedule), and ER charges for an inpatient claim are included in the reimbursement methodology and are not reimbursed separately (charges for an observation room on an inpatient claim should be coded with revenue code 760).
It is important to realize that any inpatient stay billed to the Texas Medicaid Program is subject to retrospective review by the HHSC UR Unit with the possibility for denial if the admission is determined not medically necessary. If the inpatient admission is denied as not medically necessary, HHSC UR may allow services rendered during the first 23 hours (less than 24 hours) to be rebilled to TMHP as an outpatient claim if a physician's order for outpatient observation is present in the hospital medical record (per Title 1 TAC §371.206[b]). The claim must be submitted to THMP within 120 days from the date of the UR notification letter.
The following documentation must accompany the revised bill:
• Revised UB-04 CMS-1450 claim form containing the required data for outpatient billing for medically necessary outpatient services.
•Copy of the UR notification letter indicating services may be rebilled.
When a client is admitted to the hospital as an inpatient and is discharged in less than 24 hours, the hospital may request that the physician change the admission order from inpatient status to outpatient observation status. This billing practice is acceptable under the Texas Medicaid Program when the physician makes the changes to the admitting order from inpatient status to outpatient observation status before the hospital submits the claim for reimbursement. A hospital is not allowed to convert a client from observation status to inpatient admission status without a physician's order.
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