Observation Coding and Reimbursement Updates for 2024

Brian Hiestand MD, MPH, FACEP
Service Line Director, Atrium Health Wake Forest Emergency Medicine

Michael Granovsky MD, CPC, FACEP
President, LogixHealth

It is hard to believe that we’ve lived with the 2023 CPT revisions for ED and observation codes for nearly a year. Emergency medicine in general has harnessed our usual resilience in the face of inevitable change. We have adopted the processes of documenting the complexity of problems addressed, our data reviewed, and decisions around observation or hospitalization that drive the levels of service for observation codes, whether same day or multiday. While the fundamentals underlying the observation codes, as updated in 2023, have not changed, there are some recent updates that touch on observation-relevant reimbursement. We will address the 2024 CMS Final Rule as well as an update from the 2024 CPT definitions that clarifies timing requirements for observation services. 

Federal RVU Conversion Factor for 2024

The Relative Value Unit (RVU) is the fundamental measure of physician work (both cognitive and procedural) assigned to any given CPT code. Every year, CMS determines the dollar amount that they will pay per RVU – this is the Medicare Conversion Factor (CF), and it is applied to professional billing across all specialties and settings. We could spend the entirety of the update going deep into the mechanisms and rationales that CMS uses to come to this valuation – it is sufficient to note that there are multiple considerations, including a mandate of “budget neutrality” such that anticipated increases in spending in one domain are offset by cuts elsewhere. Budget neutrality has resulted in a year-over-year decrease in the Conversion Factor. In 2022, the CF was $34.60, but then dropped to $33.89 in 2023. Absent congressional action, we are currently slated to see a 2024 CF of $32.74 representing a 3.4% decrease. Not only is the CF not indexed to inflation, it has been falling since 2008, when an RVU was reimbursed at $38.09. ACEP continues to advocate with executive and legislative leadership to reverse this trend and major advocacy efforts are currently underway to protect our revenue for 2024.

2024 Observation CPT RVU Valuation

There are minimal, although generally positive, changes to the total RVU valuation of observation services in 2024. 

Split / Shared Services

Many observation units utilize APPs to assist with patient management. Many payers, including Medicare, reduce reimbursement for services that are reported primarily under the NPI of the APP by 15%, unless the physician satisfies the shared service requirements. Currently, to be paid at 100%, CMS requires that the physician provide a “substantive portion” of the medical decision-making involved in the patient’s care, or provides over half the clinical care time. CMS was considering moving to the time-based standard as the sole definition. Fortunately, the 2024 Final Rule affirmed that the shared service requirement is met when the physician made or approved the management plan accounting for the complexity of problems addressed, as well as taking responsibility for the risk of the plan to the patient, in collaboration with the APP. Of note, the physician would typically also need to personally document and perform any independent interpretations of diagnostic studies (eg, EKGs) that are used to determine the observation visit level.

8 Hour Minimum Requirement: Both Same Day and Overnight            

One element that has been clarified in the 2024 CPT definitions of the observation codes centers on observation stays that are less than 8 hours in total duration. Previously, an observation service initiated before midnight, but lasting less than 8 hours in total duration, would be covered by codes 99221-99223 for the first calendar day, followed by a discharge code of either 99238 or 99239, depending on the total time spent by the physician or APP in day of discharge care. The 2024 CPT update has now stated that an observation stay of less than 8 hours, regardless of whether the stay crossed midnight, should only be reported with the first day observation codes (99221-99223), and the day of discharge codes should not be reported. Therefore, day of discharge management codes should only be reported if the patient is discharged after an observation stay that both crosses sequential calendar days and extends greater than 8 hours. Additionally, CPT has clarified that same day observation, if reported with 99234-99236, requires 8 hours.

CPT 2024 Observation Time Requirements

Other than the Medicare conversion factor, these updates are generally positive towards observation care in the ED setting, or act to resolve conflicts in implementation and definitions between CMS standards and CPT definitions.  Although there is a flurry of activity in the autumn of each year with the release of the annual Final Rule, ACEP is active year-round at the state and federal level.  You may find further information on ACEP’s advocacy work at https://www.acep.org/federal-advocacy/federal-advocacy-overview.

Links and References

https://www.acep.org/administration/reimbursement/reimbursement-faqs/2023-ed-em-guidelines-faqs/

CPT 2024 Professional Edition. American Medical Association.

Medicare and Medicaid Programs: Calendar Year 2024 Payment Policies under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; etc.  Available at: https://www.federalregister.gov/public-inspection/2023-24184/medicare-and-medicaid-programs-calendar-year-2024-payment-policies-under-the-physician-fee-schedule

Dr. Hiestand is the service line director for Atrium Health Wake Forest Emergency Medicine headquartered in Winston-Salem, North Carolina, and the director of ED observation services for Atrium Health Wake Forest.  He currently serves on the ACEP Coding and Nomenclature Committee, as well as the ACEP Reimbursement Committee.

Dr. Granovsky is the president of LogixHealth, a national ED coding and billing company processing over 13 million annual encounters. He has served as the hair of both the ACEP Coding and Nomenclature Committee and ACEP Reimbursement Committee and is the current course director of the ACEP National Coding and Reimbursement Conference. Questions may be forwarded to: mgranovsky@logixhealth.com