August 17, 2009

Observations on ‘Observation’
By Judy Sturgeon, CCS
For The Record
Vol. 21 No. 16 P. 8

When I first started in hospital coding, I didn’t have a clue about the difference between an outpatient and an inpatient. Twenty-two years later, there are a lot of physicians who don’t seem to know the difference either. This doesn’t apply only to new residents; even faculty and community physicians don’t always understand the distinction.

It is common for caregivers of all types to believe that a patient who is physically in a hospital bed is “admitted.” An overlapping number of these people also believe that observation means the patient hasn’t been in the hospital for more than 23 hours and, when the 23-hour period has expired, the patient has to be admitted. While older terminology referred to 23-hour observation, it is critical to understand that the clock does not validate admission criteria.

Why the Coder Cares (or Should Care)
An experienced coder is aware that patients having routine surgeries are typically outpatients, and those who are in house for several days are generally inpatients. With widespread use of coding software and computerized admission and billing systems, it is not unusual for the patient status to even determine which coder is physically able to access the account for coding purposes. Outpatient and inpatient coding rules can vary significantly, and payment for the two varies even more significantly. Consequently, it is critical for the coder to be experienced enough to handle the patient’s case and to use the correct codes and charges for the services provided.

What Is Observation?
The Centers for Medicare & Medicaid Services’ (CMS) Web site defines outpatient observation services as the following: “Observation care is a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation services are commonly ordered for patients who present to the emergency department and who then require a significant period of treatment or monitoring in order to make a decision concerning their admission or discharge.”

With this definition in mind, the CMS goes on to explain that “the purpose of observation is to determine the need for further treatment or for inpatient admission. Thus, a patient receiving observation services may improve and be released or be admitted as an inpatient.”

Starting in Observation Services
Certain conditions must be met: There must be orders for observation services in the chart; the orders must be made by a physician qualified to order this type of service; and the services provided must qualify for the hospital setting. The trick here is determining whether the service is reasonable and necessary. For instance, it would likely be inappropriate for a stable patient with no other risks or symptoms to be put in the hospital with orders for observation services if he or she only needed to undergo an MRI for chronic mild back pain. Why? This is a test that could easily be performed in a clinic setting with no risk to the patient’s health or safety.

Some hospitals have a specific area set aside as an observation unit or wing, but this is not required to have a patient in the hospital for observation. The patient may not even be assigned to a room; rather, he or she can have observation orders and still remain in the emergency department. Remember, observation is a service, not a room or a place.

Another notable caution: If the physician writes an order that reads “admit for observation,” it is likely to be considered an order for inpatient services. Auditors typically consider the use of the word “admit” to be the deciding factor for approval or denial. If the physician does not want an inpatient status, it is recommended that terminology for orders include “place in observation status,” “assign to observation services,” or similar orders that don’t include the word “admit.”

Upgrading to Inpatient Services
If observation patients are not stable for discharge, they can be upgraded to inpatient status with the appropriate orders by a qualified physician. Once again, significant criteria need to be met before a third-party payer will reimburse the hospital for an inpatient stay. A simple way to consider the issue is to remember that both severity of illness and intensity of service must be met. The patient’s symptoms must be severe enough to expect the stay to be significant, and the services provided must be commensurate with that severity. Should the need for inpatient upgrade be decided, the orders must be placed in the chart while the patient still meets inpatient criteria. If the physician is busy and doesn’t get around to putting an order in the chart until later in the day but, in the meantime, the patient has stabilized and the symptoms are no longer severe (or the treatments that qualify for inpatient status have already been completed), payment may be ultimately denied.

Qualifying under both severity of illness and intensity of service can be extremely subjective. Many hospitals use published criteria such as Milliman or InterQual. Some payers and hospitals develop their own criteria; some may switch back and forth from one year to the next. But no matter which method is used, the CMS warns that criteria are a guide, not a guarantee. The physician’s evaluation of each patient, as well as comorbidities and even social circumstances, may warrant the justification or denial of an inpatient stay even when standard criteria would ordinarily validate the opposite level of service.

Changing Your Mind
Once a patient has been admitted, Medicare does not allow physicians to simply change their mind and switch the patient back to observation status. Strict criteria must be met. A multidisciplinary team, including at least two physicians, must review the case and agree that inpatient criteria was not met; the change must be made prior to the patient’s discharge; and the reason for the change must be documented in the chart. Even when all the required conditions are met, the patient does not automatically qualify for billing retroactive observation services unless an observation order was previously placed in the chart.

There is a five-page summary of the requirements to apply Condition Code 44 and change a Medicare inpatient back to an outpatient in the Medlearn Matters article No. SE0622, which can be found at www.cms.hhs.gov/contractorlearning resources/
downloads/ja0622.pdf. The committee, the billing requirements, the criteria, and the documentation needs are complicated and explicit. If your hospital’s case management team is not already well versed in all the details of the process for Condition Code 44, be sure to refer them to this site as soon as possible. A useful flowchart to make the system a little easier to understand can be found at http://hpmp.tmfhqi.net/LinkClick.aspx?fileticket=fsA6M3X5kII%3D&tabid=
521&mid=1247.

Remember that Condition Code 44 is a Medicare procedure. Other payers may insist that a case be processed as an outpatient, regardless of physician orders. Yet other insurances may determine whether a case is processed as inpatient or outpatient by the CPT code of the planned procedure.

What Can Coders Do?
The best way to avoid incorrect coding and billing for observation vs. inpatient cases is to understand the basics of admission criteria and be aware of payer expectations at the hospital. Ask the contracting department or a billing manager to speak to the coders about how the different payers handle the two types of patients. Find out to whom each payer’s problem cases should be referred. Medicare may not allow changes after discharge, but others allow changes and clarifications until the case is actually billed. Arrange for case management to provide coders with an in-service on admission criteria.

Coders can’t change the patient status, but they can assist in ensuring that claims go out clean, denials are minimized, and the revenue cycle is as correct and compliant as possible.

— Judy Sturgeon, CCS, is the clinical coding/reimbursement compliance manager at Harris County Hospital District in Houston and a contributing editor at For The Record. While her initial education was in medical technology, she has been in hospital coding and compliance for 21 years.