Billing guidelines for outpatient observation: 48-hour rule

At a glance:

• Observation stays not converted to inpatient status are limited to 48 hours; ancillary services beyond this limit can be billed separately.
• Services leading to inpatient admission on the same day are included in the first-day rate; those on the prior day can be billed as outpatient services within the 48-hour limit.

Per the Provider Type 12 (Hospital, Outpatient) Billing Guide and Medicaid Services Manual (MSM), observation stays that do not roll over to inpatient status are limited to 48 hours.

Providers should not bill for observation hours exceeding the 48-hour policy limit.

Ancillary services provided beyond the 48-hour observation limit can be billed if not in conjunction with billed observation hours exceeding the 48-hour limit.

Observation and ancillary services resulting in a direct inpatient admission provided as part of one continuous episode of care on the same calendar date and at the same facility as the inpatient admission are included in the first inpatient day per diem rate.

Observation and ancillary services rendered on a calendar date preceding a rollover inpatient admission date can be billed as outpatient services up to the 48-hour policy limit.

Complete outpatient hospital services policy pertaining to facility responsibility is located in MSM Chapter 200. This chapter and all other MSM chapters are on the Division of Health Care Financing and Policy (DHCFP) website.

Outpatient hospitals are responsible for referencing MSM chapters applicable to the types of services provided.