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From Lancaster General Hospital’s Physician Advisor Team

Medicare now bundles Observation payments. Procedures on OBS impact the bottom line.

As of Jan. 1, CMS is paying a flat Observation payment of $2,275 as part of Comprehensive-APC 8011.  This payment bundles the ED visit, Observation hours, all studies and lab tests.  However, there are some other important nuances to be aware of regarding procedures performed during the same encounter as the Observation services.  Procedures that are coded as either T or J1 will cancel the Observation hours, bed charge and nursing care ($2,275).  J1 procedures also cancel the ED work-up.

If a T procedure is performed during the same encounter as Observation services: 

  • The APC 8011 ($2,275) is not paid (no OBS hours, bed, nursing).

  • The charge for the T procedure is paid.

  • ED visit and studies are paid.

If a J1 procedure is performed during the same encounter as Observation services: 

  • The APC 8011 ($2,275 OBS) is not paid. 

  • The charge for the J1 procedure is paid. 

  • ED visit and work-up are NOT paid, as these are considered bundled in the J1 payment. 

Common T procedures 

  • GI: EGD, colonoscopy, small bowel endoscopy, ERCP, capsule endoscopy, liver biopsy, paracentesis

  • GU: cystoscopy, removal of ureteral calculus, placement of ureteral stent, ESWL

  • Pulmonary: bronchoscopy, thoracentesis

  • Vascular: ligation, revision or open thrombectomy of AV fistula

  • Cardiology: cardiac catheterization (without intervention)

  • PICC line placement or replacement

  • Orthopedics:  treatment of some fractures, arthrocentesis

Common J1 procedures

  • GI: scope with stent placement

  • GU: removal of kidney stone

  • Cardiology: PCI, EP studies, ablation, PVI, pacemaker placement

  • Orthopedics: treatment of some fractures

  • General surgery: lap appendectomy, lap cholecystectomy

Example cases

  • Patient placed into observation for epigastric pain concerning for ulcer, stable H/H.

Scenario 1:  PPI initiated, planned for d/c with outpatient EGD.  Hospital paid $2,275.
Scenario 2:  PPI initiated, EGD (T procedure) performed in Observation.  Hospital is paid for the EGD ($756.89) and ED visit ($250-450 depending on level of visit).  Estimate $1,200.
In other words, the hospital is penalized about $1,000 by performing the EGD – paid less for doing more.

  • Patient undergoes laparoscopic cholecystectomy (J1 procedure).

Scenario 1:  Patient presents with it as a scheduled elective case – paid $4,038.82.
Scenario 2:  Patient presents through the ED with abdominal pain, had an abdominal US in the ED, which confirms acute cholecystitis, was placed under Observation services for eight hours, underwent the surgery and was discharged before the second midnight.  Hospital is paid $4,038.82. 

In other words, the hospital receives the same payment, even though the patient received eight hours of Observation nursing care, a hospital bed, IV narcotics pre-op and imaging. 

Recommendations for providers involved in management/consultation of OBS patients who are on Medicare

  1. Absolutely provide appropriate care to patients receiving Observation services.

  2. Use Observation to rule out the bad stuff.  If dangerous problems are ruled out but additional work-up is needed, please consider discharge with outpatient work-up and follow-up.

  3. Work with the Observation staff to level-set patient expectations for an Observation stay.

  4. Some cases will need to have these procedures performed while in Observation.  The goal should be to offset this loss with other cases that can be discharged.  If you have determined the patient is now low-risk after a period of observation, please transition to an ambulatory work-up.  We ask you to choose wisely.

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