Entering a hospital can be a stressful experience, particularly for new patients. When “inpatient” and “observation” are used, patients often become confused about their status and healthcare billing implications. Today, we’re exploring the initial hospital observation for new patients of inpatient CPT codes, simplifying its complexities and empowering you with information.

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What is Initial Hospital Observation Care?

Observing patients in the hospital at the first checkup is vital for their overall care. Choosing the appropriate way involves closely examining their medical history, symptoms, and any possible risks. 

The initial hospital observation care consists of a brief assessment to determine whether you should remain an inpatient or return home. Your condition will be observed and evaluated for at least 24 to 48 hours and occasionally longer. The observation place of service code takes benefits and gathers information about your medical state.

The Role of Initial Hospital Observation Care

Patient Assessment

Initial hospital observation care has multiple purposes. The medical team uses it to evaluate the patient’s medical background, signs, and risk factors to determine the cause of their admission.

Monitoring Vital Signs

The medical team carefully observes the patient’s vital signs, such as blood pressure, heart rate, and breathing rate, to ensure stability and detect complications.

Medication Management

The medical team reviews the patient’s current medications. They also check for any interactions and make adjustments as needed to ensure the patient’s safety and the effectiveness of their treatment.

Education and Support

The initial hospital observation care also enables the medical team to update the patient and their family regarding their condition, treatment plan, and any required lifestyle changes.

Why are Patients Placed in Observation?

There are multiple reasons why observation care may be necessary for inpatient CPT codes

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  • Unclear diagnosis: Doctors require additional time to collect information and narrow the options when symptoms indicate different possible diagnoses. 
  • Acute yet controllable condition: Minor chest pain, dizziness, or allergic reactions often need to be monitored to ensure stability before patients can be discharged. 
  • Post-procedure recovery: After undergoing minor surgeries or diagnostic procedures, observation is essential to ensure patients remain stable before they can go home. 
  • Social factors: If it appears unsafe for patients to be discharged home due to lack of support or concerns about their home environment, observation provides temporary shelter.

How Does Initial Hospital Observation Care Work?

They provide initial hospital observation care for patients who require assessment and monitoring prior to additional treatment. They usually give this type of care to those who enter the emergency room and need extra time for evaluation. The medical staff continuously monitors the patient’s condition, collects vital signs, and initiates necessary tests or treatments. 

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For these observation services, the hospital’s physician is in charge of billing. Similar to inpatient hospital visits, specific inpatient CPT codes are used for billing and coding observation services, and the documentation requirements are identical. Medicare has specific payment and time requirements for hospitals that provide observation care, and the billing process must adhere to those requirements.

Difference between initial observation care and inpatient care

Feature Initial Observation Care Inpatient Care
Purpose To monitor a patient’s condition and determine if inpatient admission is necessary To provide ongoing treatment and care for a confirmed medical condition
Level of care Less intensive than inpatient care More intensive than observation care
Length of stay Typically less than 24 hours Varies, but usually longer than 24 hours
Types of services Limited diagnostic tests, medications, and monitoring Extensive diagnostic tests, treatments, and monitoring
Billing Covered by outpatient benefits  Covered by inpatient benefits 
Cost to patient May have higher co-pays and deductibles than inpatient care Generally has lower co-pays and deductibles than observation care 
Discharge decision Can be discharged home or admitted to inpatient care Admitted to inpatient care
Example conditions Chest pain, dizziness, abdominal pain Pneumonia, heart attack, surgery recovery

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How Long Does Initial Observation Care Typically Last?

Initial observation care usually lasts less than 24 hours. In most cases, they decided to discharge a patient within that time. However, there are rare instances where observation care may extend beyond three days. In such cases, the physician will bill for each day of observation services provided. They must provide these services for a minimum of 8 hours per day. The units of service represent the countable number of observation hours the patient spends in the hospital. The observation time starts when documented in the patient’s medical record and coincides with the initiation of observation services.

Process for Discharge from Initial Hospital Observation Care

Being discharged from initial hospital observation care usually involves several steps. 


The medical team will evaluate the patient’s symptoms, medical history, and risk factors to determine whether the patient’s condition has improved and whether further therapy is required. 

Discharge Orders

The team will record the discharge orders in the patient’s medical file if they determine the patient no longer needs treatment or initial observation. 

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Discharge Planning

After that, the patient and their family will work with the medical staff to create a discharge plan that may include medication instructions, follow-up appointment schedules, and any necessary lifestyle changes.  

Discharge Date 

Generally, a patient’s discharge from the hospital is decided upon within a day of the admission reason being addressed. The physician will report Initial Observation Care using the relevant CPT codes if the patient is released from the hospital on a date other than the date of admission.


If the same doctor who admitted you to observation also admitted you to inpatient, they will bill the CPT code for hospital admission on your initial hospital care code (CST 99221 – CST 99223). If they discharged you on a calendar date other than the date they admitted you, your doctor will bill you for observation discharge and hospital admission.

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The first stage of hospital observation codes 2023 plays a vital role in patient care at healthcare facilities. It enables the medical team to evaluate the patient’s condition, focus on their vital signs, handle their medications, offer guidance and help, and do additional tests or treatment. By comprehending the significance and requirements of initial hospital observation care, patients can prepare for their hospitalization and actively participate in their healthcare progression.