Skip to main content

A Guide To The Nuances Of Coding For ‘Observation’ Status Patients

Are “observation” patients inpatients?

No. Medicare considers observation services to be outpatient services.1 Even though this is counterintuitive, we cannot assume that a patient who is in a hospital bed is in fact “admitted” to the hospital. In other words, a patient who is physically in the hospital is not necessarily a hospital inpatient. We must know if the patient is in the hospital under “observation” status or “inpatient” status because this affects the codes we should be using when seeing these patients.    

With observation services being considered outpatient services, when one is performing a consult for a hospital observation patient, the "Office or Other Outpatient Consultations” codes (CPT® 99241 – 99245) apply.

The exception to this is for payers, such as Part B Medicare and United Healthcare, that do not recognize consult codes. For these payers, one would code the initial visit for a hospital observation patient with an “Initial Observation Care” code (CPT® 99218 – 99220) and subsequent visits with “Subsequent Observation Care” codes (CPT® 99224-99226).

As always, clinicians must meet the thresholds of performance, documentation and medical necessity for the given code level they select. When providing observation services, the place of service should be “22: On Campus - Outpatient Hospital.”

Observation status is not limited to stays of 24 hours or less. It can even last multiple days so we cannot rely on length of stay in making this determination. Some facilities have “observation” units but we cannot rely on that either because sometimes hospitals place patients in different beds or units based on hospital volume or other criteria. Accordingly, we cannot make the determination based on duration of stay or location in the hospital. It is important to confirm patient status with an administrator or staff person in the hospital who understands the difference, and has access to determine the patient’s official status.

Current Procedural Terminology (CPT®) copyright 1966, 1970, 1973, 1977, 1981, 1983-2019 by the American Medical Association. All rights reserved. CPT is a registered trademark of the American Medical Association (AMA).  

Dr. Lehrman operates Lehrman Consulting, LLC, is a consultant to the APMA Health Policy and Practice Department, serves as an expert panelist on Codingline and is a Certified Professional Coder. Follow him on Twitter @DrLehrman.


  1. Medicare benefit policy manual. Available at: . Published February 4, 2020. Accessed June 17, 2020. 
Back to Top