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Hospital Outpatient Observation

Provider Administrative Policy

Provider Information
Policy Date
May 2008
Revised/February 2011


Our provider administrative policies contain information regarding claims submission, reimbursement, and other information in order to achieve an efficient relationship with our providers. These policies are not an authorization or explanation of benefits. Blue Cross of Idaho retains the right to add to, delete from and otherwise modify this policy in accordance with our provider contracts.


Hospital Outpatient Observation

Hospitals provide observation services on their premises. These services include the use of a bed and periodic monitoring by hospital nursing staff or other staff members. They must be reasonable and necessary services used to evaluate a patient's condition or to determine the need for a possible inpatient admission.

Based on review of clinical documentation and evidence-based guidelines, Blue Cross of Idaho's Medicare Advantage Care Coordination department determines the appropriateness of an observation or if the patient is better served through an inpatient admission.

Observation services are a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment and reassessment. These services are furnished while a decision is being made regarding a patient's need for further inpatient treatment or if the patient can be discharged from the hospital.

CMS requires members receive prompt written notification when an inpatient stay is not medically necessary and is reclassified as an outpatient observation. This written notification is necessary to keep the member fully informed about how a change in status affects their cost sharing (coinsurance and deductible) responsibilities.

We require HCPCS/CPT-4 codes for outpatient claims submitted on UB-04 forms, in field 44, for revenue codes of 0510-0520 and 0761-0769. We will process claim lines without a HCPCS/CPT code as a contractual adjustment.

Please submit outpatient observation claims as bill type 013X.

Policy History

Date Action Reason
February 2011 Revised Observations services defined
August 2008 Revised Language added
May 2008 Revised Language clarification

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