The Question · Emergency department · Observation
When your ED physician places a patient in observation, the ED visit disappears.
Medicare pays one E/M per practitioner for that date. The ED code folds into the observation code, and the observation code only pays if a separate observation record exists. Here is who bills what, the 8-hour line and the record a reviewer asks for.
By ASP-RCM Editorial, Healthcare RCM Practice · Updated
The question we asked on LinkedIn
Should your ED physicians write observation orders at all, or hand every observation patient to the hospitalist and keep the ED code?
E/M per practitioner per date
Medicare does not pay an ED visit and initial observation care by the same practitioner on the same date
The same-day discharge line
Under 8 hours: 99221-99223 only. 8 to 24 hours, same date: 99234-99236
MOON notice trigger
Hospital must give Medicare patients the notice no later than 36 hours into observation
Rare outer limit
CMS says observation spans more than 48 hours only in rare, exceptional cases
The handoff, and where the code goes
Medicare rules in the Claims Processing Manual, chapter 12, sections 30.6.8 and 30.6.9.1.
ED evaluation
The ED physician sees the patient. On its own, this is a 99281 to 99285 visit.
Observation decision
If the same practitioner orders observation, the ED work folds into one initial observation code for that date.
Observation record
Dated and timed orders, nursing notes and progress notes, separate from the ED record. No record, no observation code.
Discharge or admit
Length of stay and calendar date decide between 99221-99223, 99234-99236, or initial care plus 99238-99239.
Who bills what, by scenario
Medicare rules. Commercial payers can differ, and some allow both an ED code and observation on the same date.
| Scenario | ED physician bills | Other physician bills |
|---|---|---|
| ED physician orders observation and stays responsible | Initial observation code only, no ED code | Consultants bill office or outpatient visit codes |
| Hospitalist takes the patient into observation | ED visit 99281-99285 | Initial observation code, 99221-99223 or 99234-99236 |
| Surgeon decides on surgery during ED-ordered observation | Observation codes | Office or outpatient visit code with modifier 57 |
| Patient's own physician comes to the ED, patient sent home | ED visit code | ED visit code for the service provided |
| Patient's own physician admits from the ED | ED visit code | Initial hospital care, 99221-99223 |
The 8-hour rule in one table
CMS summary for hospital inpatient or observation care, by length of stay and discharge date.
| Length of stay | Discharged on | Bill |
|---|---|---|
| Under 8 hours | Same calendar date | Initial care only, 99221-99223 |
| 8 hours or more | Same calendar date | Same-day admit and discharge, 99234-99236 |
| Under 8 hours | A later calendar date | Initial care only, 99221-99223 |
| 8 hours or more | A later calendar date | Initial care plus discharge, 99238 or 99239 |
Prolonged services may be added where they apply. Care that runs continuously past midnight is reported on the date it began.
The observation clock
Hours counted from the start of observation, Medicare rules.
- Hour 0
Dated and timed observation order written. The observation record starts here.
- Hour 8
Same-date discharge now bills as 99234-99236, with the stay length documented.
- Hour 24
Past this point the hospital owes the Medicare patient the MOON notice.
- Hour 36
Latest point to deliver the MOON, or sooner if the patient is released.
- Hour 48
CMS calls observation beyond this rare and exceptional.
The observation record a reviewer asks for
CMS requires an observation record in addition to the ED record before observation codes are paid.
Gets denied or downcoded
- ED note copied forward as the observation note
- Observation order with no time stamp
- Stay length not stated for a 99234-99236 claim
- No note showing the billing physician was present
Holds up
- Separate observation record with its own progress notes
- Dated and timed order from the billing physician
- Note states the stay was 8 hours but under 24
- Admission and discharge notes written by the billing physician
Three things that trip up ED groups
Code selection differs
ED codes use MDM only. Observation codes use MDM or total time, so time can support the level.
Commercial rules vary
Some private payers allow an ED code and observation on the same date. Load each contract's rule into your edits.
Duplicate claims
Medicare pays initial observation only to the physician who ordered it. If two physicians bill it for one stay, expect a denial. Agree who orders before the shift.
Check your last 10 observation handoffs
Pull ten ED patients who went to observation and tick what is true.
Decide who owns observation before the shift, not on the claim. If the ED physician orders it, bill one observation code with its own record. If the hospitalist takes it, keep the ED code.
Questions operators ask next
Can an ED physician bill an ED visit and observation on the same day?
Not for Medicare. If a practitioner sees a patient in the ED and places them in observation, Medicare pays only the initial observation care code for that date, not the ED visit. Some commercial payers allow both, so check each contract. A different physician who takes over observation bills the observation code while the ED physician keeps the ED code.
What replaced observation codes 99218-99220 in 2023?
Since January 1, 2023, observation care is billed with the hospital inpatient or observation codes: 99221-99223 for initial care, 99231-99233 for subsequent care, 99238-99239 for discharge and 99234-99236 for same-day admit and discharge. The old observation codes 99218-99220 and 99224-99226 were deleted.
When do you bill 99234-99236 instead of 99221-99223?
Under Medicare rules, use 99234-99236 when the patient is in observation or inpatient care for at least 8 hours but less than 24 hours and is discharged on the same calendar date. Under 8 hours on the same date, bill 99221-99223 only. The note must state the stay length and show the billing physician was present.
When must a hospital give the MOON notice?
Hospitals and critical access hospitals must give the Medicare Outpatient Observation Notice to Medicare patients, including Medicare Advantage enrollees, who receive observation as outpatients for more than 24 hours. It must be delivered no later than 36 hours after observation starts, or sooner if the patient is released.
Want to see what your observation handoffs are costing?
Send us 90 days of ED and observation claims. A senior emergency billing partner shows you where ED codes were dropped, doubled or left unsupported, in a free 30-minute call with a written gap list after.
Keep reading
Sources
- CMS, Medicare Claims Processing Manual, chapter 12, sections 30.6.8, 30.6.9.1 and 30.6.11
- CMS, Medicare Outpatient Observation Notice (MOON) fact sheet
- ACEP, Observation physician coding FAQ
Checked November 4, 2026. Medicare rules from the CMS manual as posted on November 4, 2026. Commercial and Medicaid payers set their own rules; check each contract. General information, not legal or coding advice for a specific claim.