Complex topic, some basic initial information--
(A) The reason you are hearing about this is an increased CMS focus on the "Medicare Outpatient Observation Notice" (MOON!). Basically a regulation that you must formally, in an organized manner with a standardized paper form, deliver notification to patients that they are in observation status within 24 hours of said observation services starting (though they give a grace period up to 36 hours, unless discharged earlier).
(B)Basically, 3 exits exist for every ED patient (from a billing / status PoV):
(1) Discharged, they get an OUTPATIENT bill for an E&M service. Possibly with critical care charges, or possibly with additional procedure charges. This would include patients TRANSFERRED directly out of your ED, and patients who DIE in your ED.
(2) Admitted to the hospital. You personally would still bill for an ED E&M visit like above, but the patient becomes and INPATIENT when the admitting physician writes that order and the rest of their visit in an INPATIENT visit that bills as such.
(3) Observation! Observation is a STATUS (like inpatient) NOT a location. Observation can happen in the ED, on the wards, or even in the ICU. Observation, while physically seeming like an "admission" to the patient, actually is treated as an OUTPATIENT service as far as insurance coverage! This is why patients often get pissed-- they might have full coverage of inpatient services, but have to pay a 20% coinsurance for outpatient services! NOT FAIR. The concept behind observation is that they don't fit true admission criteria, but also they aren't ready to discharge-- you need a period of observation, further testing, and treatment to figure this out. Of course, its turned into an insane game whereby insurance/gov't declines to pay for services that are felt to be necessary... because they set the rules as to what is observation and what is admission!
(c) Medicare's more recent rules state that the admitting physician has to truly believe that the patient needs two midnights in the hospital to fix their problem (not to wait for an MRI that is only available Monday; Not wait for a PT consult and let Case Management have 3 days to place them) for them to qualify as an admission.
(D) On top of that TWO MIDNIGHT rule, most common commercial insurance will follow published guidelines as to what de facto meets inpatient criteria, and what only gets observation coverage.
McKesson’s InterQual Criteria is one of the major guidelines.
(E) For example, if I came in with cellulitis on my shin, that doesn't meet inpatient criteria. However if the cellulitis covers >50% of my limb, or I've been on outpatient abx for >48hr and am failing them... well that might just check a box and meet inpatient criteria!
(F) and yes you can bill for observation in the ED. Some common reasons are intoxication, chest pain requiring serial enzymes and stress testing, severe dehydration requiring extended therapy, unstable psych disease, etc etc. You need to be in the ED across a midnight, or >4/6/8hr (depending on insurance!) to fit criteria for this...
Why does it matter? Frankly, aside from ED-based observation pathways, it doesn't matter directly to the ED physician. But it is very important to the hospital and the inpatient teams, so it matters to us secondarily. For financial reasons, you would want to make sure you get people who deserve/quality for inpatient status into full admissions, instead of observation. Otherwise your hospital is leaving money on the table, and likely patients are bearing increased cost!
If you have serious interest in this, your hospital surely has Case Managers dedicated to the task who would love to guide you, and a Utilization Management Committee which is likely active on the topic...
