Corporate Compliance

Note: Observation with condition code 44 and physician supervision

Medicare Insider, March 31, 2009

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Last week the American Health Lawyers Association held their annual Institute on Medicare and Medicaid Payment Issues in Baltimore. After speaking about observation at a conference session, I had the opportunity to speak to a CMS representative informally about condition code 44 as it relates to observation and also about physician supervision in hospital outpatient departments.

I had mentioned during my presentation that I was unsure how inpatient care hours should be converted following the appropriate use of condition code 44. When the case is converted to outpatient under condition code 44, I indicated it was unclear if these hours should be converted to observation or if the observation time begins at the time the inpatient status is changed and the observation order is written.

The CMS representative declined to answer formally for CMS; however, she indicated that it was her understanding that because there was no observation order at the beginning of the visit, the hours of care given under the inpatient order would not qualify to be billed as observation hours. This does seem in line with the CMS guidance that an order is required for observation services. Although this was informal guidance, it does fit with the current manual instructions regarding observation, and providers should use caution billing for hours of observation for which there is no specific order for observation in a condition code 44 case.

For example, a patient comes through the emergency department in the early morning and is admitted as an inpatient at 9 am. Case management reviews the case in the afternoon and refers it to the physician advisor from the Utilization Management Committee for a determination that the case does not meet inpatient status. The physician advisor agrees, as does the attending physician, and the change in status is documented along with a new order to provide observation care at 4 pm. The patient is discharged later that night, at 8 pm. 

In terms of the number of hours of observation time, following the informal guidance from CMS, we would only have four hours of observation because the observation order was not written until 4 pm. The importance of this, highlighted by this scenario, is that if the provider billed all hours from 9 am forward as observation hours, it would be billing for 11 hours of observation and could possibly meet the requirement for separate payment under the Extended Assessment and Management Composite, which requires eight hours of observation. If some of those hours are not appropriately treated as observation due to lack of an order, then this payment is inappropriate.

I also briefly discussed with the representative the recent confusion over clarifications the agency has made regarding levels of physician supervision in hospital outpatient departments. The representative declined to answer specific questions related to a couple of scenarios I posed, but indicated CMS is considering further guidance on these issues in the near future.

I will be reviewing the clarifications and guidance provided over the last year on these issues in an audio conference on April 8 titled Incident-to Challenges for Provider-Based Facilities: Strategies to Ensure Compliance. This is an issue providers should continue to monitor closely, as there is clear indication that CMS will continue to issue further guidance in the near future.


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