Policy / Article-003
Hospital & Observation E/M Services Educational Guide
- Effective Date: 01/01/2026
- Reviewed/Revised Date: 03/23/2026
- Next Review Date: 03/23/2027
- Origination Date: 01/01/2026
-
Originated Department:
Correct Coding Integrity
Audience
Applies to all individuals involved in hospital or observation E/M services
AMA CPT® Evaluation and Management
Guidelines CMS E/M Documentation Requirements
Clinical Providers
✓ Physicians
✓ Nurse Practitioners (NPs)
✓ Physician Assistants (PAs)
✓ Hospitalists and in-hospital clinical specialists
Coding & Billing Professionals
✓ Medical Coders
✓ CDI Specialists
✓ Revenue Cycle staff
✓ Compliance and audit personnel
Overview
Critical Care —
Direct delivery of medical care for critically ill or critically injured patients who are acutely at risk of life-threatening organ dysfunction.
➔ New vs Established Patient:
For hospital/obs, “new” = first encounter for this admission.
➔ Time vs MDM
Hospital/observation visits can be coded using MDM or total time for discharge or complex cases (per CMS guidance).
Documentation Essentials
Hospital / Observation documentation should include:
✓ Patient Identification & Location – ICU, ED, or other acute care unit
✓ Patient History – Relevant history contributing to acute illness or injury
✓ Diagnostic history
- Labs
- Exams and consults
- Imaging
- Orders
✓ MDM / Risk (see decision chart)
✓ OR Time Documentation:
- Total time spent providing care
- Note start and end times for all sessions
✓ Interventions / Procedures Performed
✓ Patient status and risk
✓ Discharge instructions for discharge visits
- Document medications
- follow-up
- patient education
Total hospital time 75 minutes:
– Initial hospital care 30 min (99221)
– Hospital discharge 45 min (99239)
✓ Complete detailed documentation for hospital/observation visit.
✓ Ensure MDM or time documentation supports billed code.
✓ Document treatment plan. Include medications, follow-up, patient education.
✓ Verify labs, imaging, consults align with notes.
✓ Ensure risk is documented for complex cases.
Common Audit Triggers
ⓧ Missing HPI, exam, or MDM
ⓧ Unsupported level of service
ⓧ Incomplete discharge notes
ⓧ Inconsistent data
ⓧ Multiple comorbidities
Hospital/Observation Quick Decision Guide
Determine Encounter Type
Choose between
Hospital vs Observation
and select type:
- Initial
- Subsequent
- Discharge
Select Leveling Method
MDM ➔ use MDM tables above
Time ➔ use total provider time
Assign CPT Code
Choose CPT code based on encounter type - Initial, subsequent, or discharge. (See CPT chart)
+ Document total time if coding by time (See time-based chart)
Document
Avoid delays by submitting correct documentation:
✓ History, exam, MDM, orders, labs, imaging
✓ Interventions performed Patient status and risk
✓ Discharge instructions for discharge visits
Hospital & Observation E/M Coding in Brief
Pro Tip
Time vs MDM — Hospital/observation visits can be coded using MDM or total time for discharge or complex cases (per CMS guidance). See time-based chart
Service Type
CPT Codes
Notes
Initial Hospital Care (New Admit)
99221–99223
First hospital encounter for current admission
Note:
First encounter = “new patient”
Initial Observation Care
99218–99220
First observation patient evaluation
Subsequent Hospital Care
99231–99233
Follow-up during hospitalization
Subsequent Observation Care
99224–99226
Follow-up during observation stay
Discharge Services
99238–99239
Hospital discharge; timebased
Observation Discharge
99217
Typically billed by the admitting provider
MDM-Based Decision Guide
Note: Points are illustrative; always cross-check with 2026 AMA MDM tables.
Step 1 - Problem Complexity
Minimal — 1 point
Minor problem, self-limited
Low — 2 points
Stable chronic or uncomplicated acute
Moderate — 3 points
Exacerbation of chronic disease or acute new problem
High — 4 points
Threat to life or organ system or new acute condition requiring intervention
Step 2 - Data Type
1 point
Review labs, imaging (single test)
2 points
Multiple lab or imaging studies
2-3 points
Independent test interpretation (ECG, imaging)
1-2 points
Consultation with other providers
3 points
Complex data requiring independent analysis
Step 3 - Risk Level
Minimal — 1 point
Minor procedures, no significant intervention
Low — 2 points
Prescription adjustment, minor interventions
Moderate — 3 points
Hospital-level care, IV medications, close monitoring
High — 4 points
Life-threatening condition, ICU care required
Step 4 - MDM Level
Minimal
Problems = 1
Data = 1
Risk = 1
Hospital CPT Codes = Rare
Observation CPT Codes = Rare
Low
Problems = 2-3
Data = 2
Risk = 2
Hospital CPT Codes = 99221 / 99231
Observation CPT Codes = 99218 / 99224
Moderate
Problems = 3-4
Data = 3
Risk = 3
Hospital CPT Codes = 99222 / 99232
Observation CPT Codes = 99219 / 99225
High
Problems = ≥4
Data = 4
Risk = 4
Hospital CPT Codes = 99223 / 99233
Observation CPT Codes = 99220 / 99226
Time-Based E/M Leveling (Hospital/Observation)
Pro Tip
Hospital discharge can be coded by time only if multiple complex problems are addressed on discharge day.
CPT Code
Time
Notes
99221
30-74 min
Initial hospital care
99222
45-59 min
Initial hospital care
99223
60-74 min
Initial hospital care
99231
15-19 min
Subsequent hospital care
99232
20-29 min
Subsequent hospital care
99233
30-39 min
Subsequent hospital care
99218
30-44 min
Initial observation care
99219
45-59 min
Initial observation care
99220
60-74 min
Initial observation care
99224
20-29 min
Subsequent observation
99225
30-39 min
Subsequent observation
99226
40-54 min
Subsequent observation
99239
45+ min
Hospital discharge
99217
30 min
Observation discharge
Revision History
03/23/2026
Revised by Mountain Health CO-OP Committee
01/01/2026
Correct Coding Integrity
Disclaimer
This document is for informational purposes only. It should not replace clinical judgment or provide medical advice. Coverage, benefits, and eligibility are determined by the member’s benefit plan. CPT codes and procedures included are for informational purposes only and do not guarantee reimbursement. © CPT Only – American Medical Association