Health Information Management

Examine denials and be aware of red flags linked to inappropriate admissions

JustCoding News: Inpatient, December 9, 2009

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by Elin Baklid-Kunz, MBA, CPC, CCS

Editor’s note: This is the second article in a two-part series. Part two discusses red flags that could indicate potential improper billing for inpatient admissions.
Part one addressed claim denials for inpatient services that Recovery Audit Contractors (RAC) deem medically unnecessary.

During the RAC demonstration program, many hospitals experienced claim denials for inpatient hospital services that RACs deemed medically unnecessary. RACs found that outpatient observation services would have been more appropriate for the patients in most of these cases.

Medicare will deny an inpatient stay if it determines that the provider could have treated the patient in a less intensive setting without threatening the patient’s safety or health, or when it concludes the physician admitted the patient out of convenience.

To address these denials, providers should understand where to focus their own internal audits.

Focus on certain types of denials

Most utilization management denials from RACs and private payers have been for one-day stays for symptom DRGs, especially for chest pain. Outside auditors have included the following DRGs in their focus on short stays:

  • DRG 313: Chest pain
  • DRG 552: Medical back problem without MCC
  • DRG 392: Gastroenteritis and miscellaneous digestive without MCC
  • DRG 641: Nutritional miscellaneous metabolic disorder without MCC
  • DRG 227: Cardiac defibrillator without cardiac catheterization without MCC
  • DRG 127: Congestive heart failure

Hospitals should check their carriers’ Web sites for specific target areas, and review CMS’ Hospital Payment Monitoring Program (HPMP) data.

Analyze CERT, QIO data

CMS established two programs to monitor the accuracy of Medicare Fee-for-Service payments: the Comprehensive Error Rate Testing (CERT) program and the HPMP. The HPMP monitors prospective payment system (PPS) short-term and long-term acute care inpatient hospital discharges. The CERT program monitors Medicare Administrative Contractor/carrier payment error rates.

HPMP measures, monitors, and reduces the incidence of improper PPS acute care inpatient Medicare payments. HPMP calculates the error rate for Quality Improvement Organizations (QIO).

For inpatient claims, reviewers also make determinations regarding the level of care, meaning that for some cases a setting other than inpatient would have been more appropriate. When a QIO determines that a hospital admission was unnecessary, the QIO denies the entire payment for the admission. For QIOs, these denials are often related to short hospital stays for which providers could have rendered services at a lower level of care. A smaller, but persistent amount of medically unnecessary payment errors are due to unnecessary inpatient admissions associated with discharges to a skilled nursing facility.

Consider the following example of an unnecessary admission:

A physician admits a Medicare beneficiary with symptoms of abdominal pain and vomiting. However, the provider did not submit sufficient documentation to the QIO for review to substantiate the medical necessity for inpatient admission. Thus, the QIO determines that an adjustment for the full payment of $6,077.76 is appropriate.

Access this chart that outlines the top five service types with the highest improper payments, according to CMS’ Improper Medicare Fee-For-Service Payments Report: May 2008 Long Report. Chest pains DRG 143 (DRG 313 beginning in fiscal year 2008) had the highest error rate (20.8%), and 86.2% of these errors were for medically unnecessary services.

Recognize red flags

Distinguishing between inpatient admissions and outpatient observation continues to be a big billing problem for many providers, and hospitals are now starting to report observation services more frequently after having inpatient claims denied for medical necessity. It is important to understand that placement in outpatient observation does not limit the physician’s choice of diagnostic workups or necessary interventions to determine the need for further care as an inpatient.

Consider the following hospital practices red flags or indicators of the potential for improper billing of inpatient admissions that auditors may ultimately consider medically unnecessary:

  • Selection of patients’ registration status based solely on reimbursement concerns
  • The existence of standing orders or preprinted orders for inpatient admissions
  • Morning admissions in which physicians decide to admit an inpatient on the same day as the surgery before a normal post-surgical recovery period (e.g., two to four hours) has elapsed
  • Failure to consider registering a patient as an outpatient in observation when documentation supports that the patient is expected to be discharged or rapidly improved within 24 hours
  • Post-surgical stays for which the medical record lacks documentation showing active participation of the attending physician in the treatment of complications or comorbidities
  • Failure to properly and consistently apply utilization review criteria to inpatient stays
  • Failure to document the criteria used to determine medical necessity of inpatient stays
  • Failure to consider peer hospital practices and peer-reviewed medical literature describing hospital treatment, diseases, and surgical patients
  • Reliance on reimbursement guidance from drug and medical supply manufacturers aimed at justifying the cost of their products, especially regarding new products and treatments
  • Involvement of drug and supply representatives in the patient registration, medical coding, or billing practices of the hospital. For example, consider the 2008 Medtronic settlement for $75 million. Kyphon, which Medtronic acquired in 2007, improperly persuaded hospitals to keep patients overnight for kyphoplasty (i.e., a simple outpatient procedure to repair small fissures of the spine). Medicare then reimbursed the hospitals much more generously than it otherwise would have for the procedure. By marketing its products this way, Kyphon was able to artificially drive up demand among hospitals, bolstering its revenue and driving up its stock price.

Ensure medical necessity for observation

Observation services must satisfy medical necessity requirements, and physicians should not refer patients to observation for the following:

  • Physician or patient convenience (e.g., an elderly patient has recovered after a routine procedure, but nobody is available to pick the patient up until 5 p.m.)
  • Routine prep for diagnostic testing
  • Therapeutic procedures (e.g., blood transfusion, chemotherapy, or dialysis that the clinician routinely provides in an outpatient setting)
  • Routine recovery from outpatient procedures
  • Procedures CMS has designated as “inpatient only”
  • Patients waiting for nursing home placement
  • Routine stop between the ED and inpatient admissions

Understand condition code 44

After hospitals submit bills to Medicare, providers can only adjust the claims to correct billing errors. Therefore, the physicians cannot change their intended patient status (e.g., inpatient vs. outpatient) after the fact, unless they have met all the criteria for condition code 44.

CMS intended providers to use condition code 44, which took effect April 1, 2004, for hospital billing only, not for physician billing. Providers may use condition code 44 when a physician admits a patient to an inpatient bed, but upon subsequent review determines that the patient’s needs do not meet medical necessity requirements for an inpatient level of care. Access this flow chart by TMF Health Quality Institute, the Medicare Quality Improvement Organization for Texas, which outlines the criteria for applying condition code 44.

Some hospitals have implemented a case management protocol to assist hospitals and physicians in determining patients’ initial admission status. This protocol is designed to increase the number of hospitalized patients assigned to the correct inpatient versus outpatient status (including observation) and to decrease unnecessary admissions.

It’s important to note, however, that CMS has clarified in Transmittal 1760 in the Medicare Claims Processing Manual, that case managers who are not licensed practitioners authorized under state law to admit patients to the hospital, do not have the authority to change a patient’s status from inpatient to outpatient.

Editor’s note: Elin Baklid-Kunz, MBA, CPC, CCS, is the director of physician services for Halifax Health in Daytona Beach, FL. E-mail her at

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