Changing Observation or Inpatient CPT® Codes To Match Hospital Billing

A reader asked an astute question that comes up frequently in the debate on defining observation vs inpatient status for hospital admissions.  I have a question for you. I am getting really bogged down with this obs vs inpatient business, specially with admissions that are not so clear cut to me and stay more than a day. First of all, the initial observation vs inpatient is often decided by the ER doctor. Sometimes, if it is obviously wrong I change it. But often times that is missed, especially if our super busy nocturnist is admitting the patient. So I bill subsequent obs stay charges the next couple of days. And then the case manager comes and tells me on day 4 that the patient met inpatient criteria from day 1. Can I go back and change my codes to subsequent inpatient follow up charges? I have been told I can't. Do I need to educate myself more on what meets inpatient criteria? Again, I am talking about cases that are not clear cut. Thank you!

Thats a great question.  As a physician, how should you bill your CPT® codes when the hospital pulls a switch-a-roo (which by the way requires an order from you) and changes either inpatient to observation or observation to inpatient?  Make sure to get your copy of the AMA's CPT 2014 Standard Edition as the definitive source on CPT® codes available below and to the right from Amazon.

To understand my answer you have to understand the rules. Let me lay some ground work to help you.    There are two major types of status a patient  can enter into the hospital as.  Either they are  considered inpatient or they are considered  outpatient. Which status they are defines how hospitals get paid by Medicare and how you as a physician will get paid.

In general, inpatient stays are paid to hospitals as a diagnosis related group (DRG).  With some modifying conditions, whether the patient is in the hospital for two days or two weeks, the hospital will get paid the same amount, based on the diagnosis you carry and any major complicating conditions (MCC) and complicating conditions (CC).   However, soon, hospitals may not get paid at all with 30 day readmission rules coming shortly on the horizon.  Until then, all supplies, inpatient xrays, medications, daily hospital labs are bundled into a DRG and paid for with Medicare Part A benefits.    

If the patient is considered outpatient (such as observation status), hospital charges are paid for through outpatient benefits, which are generally paid for through Medicare Part B (except home medications which may or may not be even be paid for by Medicare Part D benefits).  Hospital charges incurred during an observation stay are often billed out separately or bundled with ER charges and often include room and board charges in blocks of time as well.  If a Medicare patient is in the hospital for less than eight hours, often, the observation stay itself will be denied and that means they won't pay the doctor charges either. So doctors, round last on your early morning observation admissions or you won't get paid for work provided.  Why?  See the next paragraph.
Medicare Part A does not cover any physician services provided during your stay in the hospital.  Medicare Part A will not cover any charges submitted by any physician that sees you in the hospital, including your   family medicine doctor (if they still round in the hospital), hospitalists, ER doctors, anesthesiologists, pathologists,  radiologists, surgeons and any  medical subspecialists.  It won't cover the charge you will receive from a physician who never saw you but provided interpretation of a billable CPT® charge (such as interpreting a cardiac echo, noninvasive vascular studies, EKGs, PFTs, xrays, etc...).  

For Medicare patients, physicians submit their charge (defined by a CPT® code) to Medicare Part B.  Medicare Part B is not an automatic entitlement.  Medicare Part B will cover 80% of submitted charges.  Many Medicare patients buy an  additional supplemental plan that covers the uncovered 20% of Part B charges.

In a nutshell, hospitals get paid under Medicare Part A and physicians get paid under Medicare Part B.  The paperwork submitted by the hospital to get paid under Medicare Part A must match the paperwork submitted by the physician for payment under Medicare Part B, or, I presume, fraud detectors go off.     That means if the physician saw the patient on days 1,2,3 and 4 and billed outpatient observation CPT® codes, but the hospital ended up submitting a single inpatient DRG request for payment by Medicare Part A, even if done retrospectively,  red flags will fly everywhere.  Why would Medicare pay for your outpatient services on days 1, 2, 3 and 4 if the patient was admitted to the hospital according to the submitted hospital charges.  Are you committing fraud doctor?  How could you possibly be billing for outpatient services when the patient was being paid a bundled inpatient DRG on the same days, doctor?

Your billing as a physician must align with the billing of the hospital or you won't get paid.  What do I do?  If I bill a patient observation and then subsequently write an order to change to inpatient, I leave my observation charges and start billing inpatient codes on the day I write an inpatient order.  The hospital will likely bundle in the charges of during the observation stay preceding the inpatient order  and they will likely bill the inpatient DRG from the date the inpatient order was received.

If the patient was admitted by a physician as inpatient and the utilization review folks at the hospital determine that observation status is more appropriate, a physician may write an order to change the patient's status to observation. In this case, the hospital will likely submit a complex set of paperwork required to make the change retroactively from inpatient to observation (code 44).  I have verified with my billing company that my billing must continue to match the hospital's billing.  If the hospital is going to submit payment for an observation stay and I submit payment for an inpatient stay, my payment will be denied.  I have verified that it is OK for me to go back and change my inpatient initial admission and or follow up inpatient codes to the equivalent level of observation codes.  The CPT® codes I submit  must match the status of the hospital plans on billing.

If I'm billing inpatient and the hospital is billing outpatient or if I'm billing outpatient and the hospital is billing inpatient, then one of us is committing fraud or medically unnecessary care, neither of which is true, but will be construed as such by the Medicare algorithms.  The other alternative is that nobody at the Medicare National Bank is paying attention and you can submit what ever you want and it will likely get paid.  Read more about hospitalist coding scenarios in my E/M resource center.  


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