Case Management

Mentor moment: CMS says providers cannot use condition code 44 to backdate observation services

Case Management Weekly, September 22, 2010

CMS issued a transmittal that explicitly states providers may not use condition code 44 to retroactively bill for observation services that the hospital provided prior to the physician’s order to change the patient from inpatient to observation. 

The transmittal does not change the requirements providers must meet when applying condition code 44. It reiterates Medicare billing rules, which state that providers may not bill for observation services that occur prior to the physician’s order.

The new language is as follows:

When Condition Code 44 is appropriately used, the hospital reports on the outpatient bill the services that were ordered and provided to the patient for the entire patient encounter. However, in accordance with the general Medicare requirements for services furnished to beneficiaries and billed to Medicare, even in Condition Code 44 situations, hospitals may not report observation services using HCPCS code G0378 (Hospital observation service, per hour) for observation services furnished during a hospital encounter prior to a physician's order for observation services. Medicare does not permit retroactive orders or the inference of physician orders. Like all hospital outpatient services, observation services must be ordered by a physician. The clock time begins at the time that observation services are initiated in accordance with a physician’s order.

While hospitals may not report observation services under HCPCS code G0378 for the time period during the hospital encounter prior to a physician’s order for observation services, in Condition Code 44 situations, as for all other hospital outpatient encounters, hospitals may include charges on the outpatient claim for the costs of all hospital resources utilized in the care of the patient during the entire encounter. For example, a beneficiary is admitted as an inpatient and receives 12 hours of monitoring and nursing care, at which point the hospital changes the status of the beneficiary from inpatient to outpatient and the physician orders observation services, with all criteria for billing under Condition Code 44 being met. On the outpatient claim on an uncoded line with revenue code 0762, the hospital could bill for the 12 hours of monitoring and nursing care that were provided prior to the change in status and the physician order for observation services, in addition to billing HCPCS code G0378 for the observation services that followed the change in status and physician order for observation services. For other rules related to billing and payment of observation services, see Chapter 4, §290 of this manual, and Chapter 6, §20.6 of the Medicare Benefit Policy Manual, Pub. 100-02.

Whether condition code 44 allows facilities to backdate observation services has been a contentious debate on case management blogs, listservs, and message boards. This transmittal may finally end the backdating debate amongst providers, says Sandra McCune BSN, RN, utilization management specialist at Lakeland Regional Health System in St. Joseph, MI. “Finally, a clarification in language we can all understand!”

The transmittal also confirms that hospitals may report outpatient nursing charges and other services that occurred while the patient was incorrectly an inpatient, even though Medicare won’t pay for them, McCune says. “It is important that claims reflect all of our costs,” she adds.

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