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Most charges for observation stays that result in an inpatient admission within 3 days of the observation period will be found in the Inpatient file. Two exceptions are described in the CMS Medicare Claims Processing Manual, section 40.3.B. These include critical access hospitals and hospitals not subject to the Inpatient Perspective Payment System (IPPS). If the hospital is not subject to IPPS, observation stay charges are only rolled into the inpatient charges if the observation occurred within one day of admission.

The observation stays that resulted in admission, and are included in the inpatient claim, are identified with revenue center code 0762 in the Inpatient claim file. Individual revenue centers are not included in the MedPAR data. The MedPAR includes charge amount variables such as accommodations, surgical supplies, etc. Each represents rolled up charges for a specific set of revenue center codes, specified in the record layout.

Prior to 2011, this revenue center was one of the many codes included in the "MedPAR Other Service Charge Amount" (OTHRAMT) which includes charge amounts for all other services (revenue center codes) that do not fit into other more specific categories.  This meant that observation stays could not be identified. In 2011 the “MedPAR Observation Switch” was added to the MedPAR, making it possible to identify observation care (billed with revenue center 0762) received immediately prior to an admission.

The Inpatient file is the only method to identify observation stays that were rolled into an inpatient admission prior to 2011. The MedPAR and Inpatient files both allow the identification of these observation stays from 2011 onward.

Medicare-paid observation stays that do not result in an inpatient admission will be found in the Medicare Outpatient file using revenue center code 0762.