Observation care services are defined as an evaluation and management service provided to patients that are in a designated "observation status" in a hospital. The service refers to the initiation of observation status, supervision of the care plan for observation and performance of periodic reassessments. Observation services are commonly ordered for patients who present to the emergency department and who then require a significant period of treatment or monitoring while a decision is being made regarding whether or not the patient will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. There may be times where the patient is in observation status for more than 48 hours, however this is rare. This article does not cover Inpatient Hospital Observation Services.

CPT codes 99218-99220 should be reported per the Centers for Medicare & Medicaid Services (CMS) guidelines when a patient receives observation care for less than eight hours and is then discharged on the same calendar date. If total observation time exceeds eight hours, report an appropriate CPT code from category 99234-99236 instead as explained below.

If a patient is admitted for observation care and then is discharged on a different calendar date, CPT code range 99218-99220 should be reported for the initial observation care day and then CPT code 99217 for the discharge day.

If a patient remains in observation care for more than 48 hours, CPT 99218-99220 should be reported for the first day of observation; CPT 99224-99226 should be reported for the second day of observation; and CPT 99217 for the observation care discharge for the final day.

If a patient is admitted and discharged from observation or inpatient status on the same date report CPT codes 99234-99236 as appropriate (CMS guidelines require that total observation time exceeds eight hours to report these codes). It is not appropriate to report observation discharge (CPT 99217) in conjunction with a hospital admission (CPT codes 99221-99223).

Observation codes are only billable by the ordering/admitting provider. All other providers should use the appropriate outpatient service codes.

Initial Observation Care1

Figure 1

ATC July Figure 1

Discharge Observation Care2

Figure 2

ACT July Figure 2

Observation Care discharge day management includes:

  • Final examination of the patient
  • Discussion of the hospital stay
  • Instructions for continuing care
  • Preparation of discharge records


  • American Medical Association 2015 CPT Professional Edition
  • CMS Publication 100-04 Medicare Claims Processing Manual, Chapter 12 Physician/Nonphysician Practitioners, (http://www. cms.gov/Regulationsand-Guidance/Guidance/ Manuals/Downloads/ clm104c12.pdf)
  • Section 30.6.8 and Payment for Hospital Observation Services & Observation or Inpatient care Services (Including Admission and Discharge Services(A-E)
  • Section Payment for initial Hospital Care Services and Observation or Inpatient Care Services

1CPT 2016 Professional Edition, AMA 2016 Section: Observation Care Discharge Services pages 14-15.


Author - Female

About the author

Stephanie Johnson, CHC, RHIT, CPC, CPEDS is Compliance Manager – Academic, Office-based and Multi-specialty Physicians of web2pro Business Performance Services.