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Regulations for Observation Services for Medicare Patients

Observation services or care involves short-term treatment, assessment and reassessment that occurs before a decision is made on whether a patient will require additional treatment as a hospital inpatient or can be sent home. The services typically occur when a patient enters the emergency room of a hospital and observation time is needed for treatment or monitoring in order to make a decision on their admission or discharge. It is an outpatient service until a decision has been made to admit a patient to the hospital.

  1. Medically Necessary

    • To qualify for observation services through Medicare, the treatment must be medically necessary according to Medicare standards. Medicare's definition of medically necessary is that the service is proper and needed for the treatment of a medical condition, is provided for that condition and meets the standards of good medical practice in the area and is not for the convenience of the patient or the doctor.

    Time Period

    • Eligibility for observation services depends on the time it takes to make a decision on the patient's care. A decision as to whether a patient is going to be admitted or discharged must be made within 48 hours. Observation services lasting more than 48 hours is approved only in exceptional cases deemed reasonable and necessary.

    Medical Requirement

    • Medicare pays for observation only when the services are ordered by a physician or other medical personnel authorized by state and hospital licensure laws. The physician or medical personnel must have authority to admit patients to the hospital and order testing. A treating physician can refer a patient to the hospital for observation, bypassing the emergency room.

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