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Medicaid Began Reimbursing for Observation Services July 1


Pennsylvania's Department of Human Services (DHS) has announced in The Pennsylvania Bulletin that Medicaid will start recognizing and reimbursing for observation status—which occurs when a patient is in the hospital but not actually admitted as an inpatient―effective with dates of service on and after July 1, 2016. DHS also provided notice of the addition of observation services to the Medical Assistance (MA) Fee Schedule.

On behalf of its physician members, the Pennsylvania Medical Society (PAMED) has been a strong advocate for this change. PAMED's advocacy efforts included leading discussions with DHS, PAMED's Medical Directors Forum, and the American Medical Association. 

DHS says that it is recognizing the need for observation services because a physician may not be able to initially determine whether an inpatient hospital admission is medically necessary. It intends to pay for medically necessary observation services provided in the hospital outpatient setting, when prescribed or ordered by a practitioner. Observation services must be prescribed or ordered for MA beneficiaries who may be directed from the emergency department, practitioner's office, or clinic and require care and monitoring for a minimum of eight hours.

Payment for Physicians

DHS will pay physicians for observation services rendered in the acute care hospital outpatient setting, effective with dates of service on and after July 1, 2016. Access the procedure code information for physicians here.

Payment for Hospitals

DHS will make a one-time, all-inclusive payment to an acute care hospital for medically necessary observation services. DHS' all-inclusive payment rate to the hospital for observation services is intended to include payment for medical diagnostic services provided during an observation stay.

More PAMED Resources

PAMED offers members a Quick Consult publication that practices can use to learn more about payment for observation services.


PAMED members with questions can contact our Knowledge Center at 855-PAMED4U (855-726-3348).

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