Case Management

Properly using condition code 44 and capturing your costs

Case Management Monthly, December 1, 2010

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Condition code 44 has been problematic for hospitals since its inception in 2004. The confusion is largely due to CMS’ unclear language, multiple changes to the observation billing rules, and inconsistent guidance from fiscal intermediaries and Medicare administrative contractors. 

Many hospitals incorrectly interpreted condition code 44 guidance to say that observation time could revert back to the date and time of the inpatient order. However, this went against observation billing rules that say observation time begins at the time observation services are initiated in accordance with a physician’s order.  

CMS issued Transmittal 2061, which makes it clear that hospitals cannot backdate observation services. If the utilization review (UR) committee determines that an inpatient admission is not medically necessary, and all condition code 44 requirements are met, the patient status reverts back to outpatient from the time of the inpatient order until the time of the observation order.  

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