Just as you hospitals have their clinicians understanding that they need to specifically order observation services, the MACs and RACs have a new way to deny observation claims. At a recent speech, the Medical Director of the Medicare Administrative Contractor Cahaba (which processes claims for many of the for-profit systems out of Nashville), said that observation orders stating "admit" instead of "referred" to observation would be invalid. The medical director reasoned that there was no such category as an observation patient so therefore a patient cannot be "admitted" to observation.

However, the confusion regarding the wording seems to come directly from CMS. From January 2006 until January 2010, CMS Claims Processing Manual Chapter 4, §290.3.3 stated repeatedly that providers could make a "direct admission to observation." In January of 2010, the section was repealed and in newly adopted adjacent manual provisions CMS started using the phrase "referred to observation."