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Condition code 44: caution advised

APCs Insider, March 11, 2004

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QUESTION: If a patient was admitted as an inpatient by the physician, but utilization review determined that inpatient criteria were not met and the patient should have been in observation, can the hospital bill the patient stay as outpatient?

ANSWER: This has been a controversial issue. The Centers for Medicare & Medicaid Services (CMS) Hospital Manual Section 230.6E (see below) has been interpreted as preventing a hospital from billing an outpatient claim if the physician ordered inpatient admission, even when a review of the case determined inpatient admission criteria were not met.

230.6E. Services Which Are Not Covered as Outpatient Observation. The following types of services are not covered as outpatient observation room services: Services which were ordered as inpatient services by the admitting physician, but billed as outpatient by the billing office.

However, some fiscal intermediaries (FIs) have issued bulletins which stated a physician could clarify the intent of his or her original order either from outpatient to inpatient or visa versa as long as this clarification was documented prior to patient discharge. Most recently, Transmittal 81, issued February 6, addressed this issue. In this transmittal under condition codes, CMS authorizes billing outpatient claims when utilization review determines outpatient status is more appropriate than inpatient. New condition code 44, effective April 1, can be used in this circumstance. However, note that CMS has stated condition code 44 is to be used for monitoring purposes only until it releases more detailed instructions, which it says are coming soon.

Although the wording of the transmittal makes it appear that this code can be used to submit outpatient claims even when the physician order states inpatient, most hospitals would view this as risky. We recommend contacting your FI and quality-improvement organization (QIO) for further clarification in the absence of more detailed national instructions from CMS. Each facility should have clear-cut policies and procedures on this (e.g., who can make the change, in what circumstances, how the changes should be documented, determining a pattern of consistency, etc.) Further, be sure to track and monitor the changes by audit methods and make sure the compliance team is up to speed with your decisions.

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