Expert Article: Observation Coding and Reimbursement
Expert Article: Observation Coding and Reimbursement
It is hard to believe that the 2023 documentation guidelines for emergency medicine and observation services (among others) were implemented two years ago. Emergency medicine coders have learned to look for documentation of the complexity of problems addressed, data reviewed, and decisions around observation or hospitalization that drive the levels of service for observation codes. While the fundamentals underlying the concept of observation have not changed, some updates to the 2023 rules touch on proper coding and reimbursement for these services. In this article, we will review the 2024 CMS Final Rule as well as an update from the 2024 CPT definitions that clarify timing requirements for observation services.
RVU Conversion Factor
The Relative Value Unit (RVU) is the fundamental measure of physician work (both cognitive and procedural) assigned to any given CPT code. Every year, CMS determines the Medicare Conversion Factor, or dollar amount that they will pay per RVU for professional billing for each specialty. Budget neutrality, which predicts increases in spending in one and offsets these increases by cutting spending elsewhere, has resulted in a year-over-year decrease in the Medicare Conversion Factor. In 2008, the CF was $38.09 as compared to the 2025 CF of $32.35.
2025 Observation CPT RVU Valuation
The 2025 changes to the total RVU valuation of observation services in 2025 are generally positive with nominal changes between the 2024 and 2025 RVU values.
Split/Shared Services
A split or shared visit is an E/M visit that both a physician or NPP in the same group perform in a facility setting, and in accordance with applicable law and regulations, either the physician or NPP can bill the service if they provide it independently. Many observation units utilize APPs to assist with patient management. The majority of payers, including Medicare, reduce reimbursement for services that are reported primarily under the provider of the APP by 15%, unless the physician satisfies the shared service requirements. Currently, to be paid at 100%, CMS requires that the physician provide a “substantive portion” of the medical decision-making involved in the patient’s care or provides over half the clinical care time. While CMS was considering moving to the time-based standard as the sole definition of split or shared E/M services, nothing new has been published on the subject since May 2024.
For prolonged visits, the substantive portion is more than half of the practitioners’ total time. Only bill prolonged services when time is used to select visit level, and determination of who performed the substantive portion is based on time.
8 Hour Minimum Requirement: Both Same Day and Overnight One element that has been clarified in the 2024 observation code CPT definitions addresses observation stays that are less than 8 hours total. Previously, an observation service initiated before midnight, but lasting less than 8 hours in total duration, would be covered by codes 99221-99223 for the first calendar day, followed by one discharge code – either 99238 or 99239 – depending on the total time spent by the physician or APP on the day that discharge care was provided.
The 2024 CPT update states that an observation stay of less than 8 hours, whether the stay crosses midnight or not, should only be reported with the first day observation codes (99221-99223), and the day of discharge codes should not be reported. Therefore, day of discharge management codes should only be reported if the patient is discharged after an observation stay that both crosses sequential calendar days and extends greater than 8 hours. The 2024 update also states that same day observation, if reported with 99234-99236, requires 8 hours.
Links and References
https://www.acep.org/administration/reimbursement/reimbursement-faqs/2023-ed-em-guidelines-faqs/
CPT 2024 Professional Edition. American Medical Association.
Medicare and Medicaid Programs: Calendar Year 2024 Payment Policies under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; etc. Available at: https://www.federalregister.gov/public-inspection/2023-24184/medicare-and-medicaid-programs-calendar-year-2024-payment-policies-under-the-physician-fee-schedule