Health Information Management

News: Trailblazer outlines inpatient vs. observation status documentation pitfalls

CDI Strategies, September 3, 2009

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Following a targeted review of 250 claims with DRG 247, TrailBlazer, the Medicare Administrative Contractor (MAC) for Jurisdiction 4 (J4) which includes Colorado, New Mexico, Oklahoma, and Texas, denied 98.8% of the claims essentially due to documentation issues regarding billing outpatient services as observation rather than inpatient status.
Of the nearly 99% of claims it rejected, TrailBlazer says it denied 87% because the medical record did not support the inpatient level of care. Another 11% received denials due to incomplete or missing documentation, with the remaining 2% rejected due to non-coverage issues.

The crux of the problem, according to TrailBlazer’s May 2009 notice, stems from the following concerns:

  • Routine inpatient admission following a postoperative outpatient procedure for clinically stable patients
  • Documentation did not support the medical necessity of an inpatient level of care
  • Patients were admitted without documentation that clinical complications were present on admission. 
  • The care rendered was observation in most cases.
Providers should consult the CMS Medicare Benefit Policy Manual, available on the CMS Web site at, for more information on admissions and official regulations to help avoid claims denials. In addition, TrailBlazer shared the following information regarding inpatient versus outpatient services:
  • Outpatient observation is still an alternative to inpatient admission
  • An order simply documented as “admit” will be treated as an inpatient admission. A clearly worded order such as “inpatient admission” or “place patient in outpatient observation” will ensure appropriate patient care and prevent hospital billing errors.
  • Medicare coverage for observation services is limited to no more than 48 hours unless the A/B MAC grants an exception.
  • An outpatient observation patient may be progressed to inpatient status when it is determined the patient’s condition requires an inpatient level of care.
  • An inpatient admission cannot be converted to outpatient observation unless condition code 44 requirements are met. Documentation must support the level of care provided (inpatient admission versus outpatient observation).
A final piece of advice from the Medicare contractor, of which CDI specialists should take note, includes the following: “Ensure the documentation addresses problems identified in the history and physical, treatment initiated, patient’s response to treatment, major changes in the patient’s condition and action taken, status of unresolved problems, discharge planning and follow-up.”

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