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Hospital Outpatient Observation

Provider Administrative Policy

Policy Date
November 2007
Revised/October 2013
Provider Type(s)


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 Medical Quality Management (MQM) case managers determine 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.

Blue Cross of Idaho does not recognize general standing orders for observation services following all outpatient surgery. Hospitals should not report as observation care, services that are part of another covered service, such as postoperative monitoring during a standard recovery period (e.g., 4-6 hours), which should be billed as recovery room services. Similarly, in the case of patients who undergo diagnostic testing in a hospital outpatient department, routine preparation services furnished prior to the testing and recovery afterward are included in the payments for those diagnostic services. Observation services should not be billed concurrently with diagnostic or therapeutic services for which active monitoring is a part of the procedure (e.g., colonoscopy, chemotherapy). In situations where a procedure interrupts observation services, hospitals would record for each period of observation services the beginning and ending times during the hospital outpatient encounter. Then add the length of time for the periods of observation services together to reach the total number of units reported on the claim for the hourly observation services HCPCS code G0378 (Hospital observation service, per hour).

Please refer to  PAP279 Clinical Criteria.


Policy History

Date Action Reason
October 2013 Revised Added link to PAP279
January 2011 Revised Outpatient observation defined
May 2008 Revised Definition revised

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