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Take for example, inpatient rather than outpatient or observation status. They can seek to recoup fully 100 percent of that claim from the acute care facility, plus 100 percent of all ancillary services and claims, including all associated physicians’ claims, when they determine the “status designation” to be incorrect.


Documentation The Culprit

The denial for insufficient documentation or improper status assignment is very often all about the documentation (or lack thereof) and leaves little or no basis for dispute regardless of clinical decisions or treatment choices made. During the RAC Demonstration, more than 40 percent of the overpayments found were classified as “Medically Unnecessary Services” or “No or Insufficient Documentation.”

Any company that could generate 40 percent of its profitable revenue from a single service area would certainly be motivated to continue performing (or following) along the same line with expectation to continue generating the same margins. RACs will certainly be no exception, and in fact they have made it clear they will continue to focus on these types of claims and their subsequent denials and financial recoupments.


Discharge Status Criteria is Crucial

Incorrect status designation errors can also be present related to discharge stage of a patient stay. Admission and/or discharge status is determined by one of three processes, as chosen by the hospital. The choices include two commercially available standardized admission criteria, while the third choice is for a facility to write their own site-specific criteria. Regardless of their choice, the criteria must be applied to all admissions and discharges at the facility, without exception. It is highly important to get the designations correct, per the agreed upon criteria, before a patient is discharged from the hospital. In fact, as far as reimbursements go, it’s crucial.

RAC auditors will probably not challenge the clinical decisions made as can often be the case with issues surrounding “medical necessity” in these instances. They can simply review the records, and compare what was revealed in the documentation to the inpatient criteria they use (i.e. InterQual / Milliman) to verify the status designation.

To stand up across the appeals process, the documentation must clearly state the conditions, clinical manifestations and symptoms required to meet the clinical criteria necessary to justify the intensity of the provided (billed) services at the site of service billed. If the documentation does not meet this litmus test, the claim paid amount will be recouped.


Condition Code 44: Use Cautiously

What happens if a hospital admits, treats and discharges a patient, submits a claim for inpatient services, and then later determines that the documentation did not support inpatient status or that the services should not have been billed as inpatient services? Can the hospital then resubmit the claim as an outpatient or observation claim?

The answer is, “Not necessarily” and, “Not without review and careful consideration.”
Although there is a special code used to change inpatient status to outpatient -Condition Code 44- this can only be used prior to a patient’s discharge, and only for outpatient claims. Failure to catch this kind of error prior to discharge can seriously cost the facility.

To reinforce how CMS has addressed this point in the past, CMS responded and answered the following question in September 2004:

Question: “How does a hospital bill using Condition Code 44?”

Answer: “When the hospital has determined that it may submit an outpatient claim according to the conditions applicable to the use of Condition Code 44, the hospital should report the entire episode of care as an outpatient encounter, as though the inpatient admission never occurred.”

Further confusion continues to reign regarding what a hospital can and should do when the established Condition Code 44 criteria are not met.

In the same September 2004 document, CMS responded to yet another question:

Question: “How should the hospital bill Medicare if the criteria for using Condition Code 44 are not met, but all requirements in the condition of participation in §482.30 have been complied with?

Answer: If the conditions for use of Condition Code 44 are not met, the hospital should submit a bill using Type of Bill 12x for covered Part B Only services that were furnished to the inpatient. Medicare may still make payment for certain Part B services furnished to an inpatient of a hospital when payment cannot be made under Part A because an inpatient admission is determined not to be medically necessary.

Information about Part B Only services is located in the Medicare Benefit Policy Manual (Chapter 6, Section 10). Examples of such services include, but are not limited to, diagnostic x-ray tests, diagnostic laboratory tests, surgical dressings and splints, prosthetic devices, and other services. The Medicare Benefit Policy Manual includes a complete list of the payable Part B Only services.

[Source: Medicare Benefit Policy Manual, Chapter 6. Download HERE.]


Education Key Component

Education, once again, is a key component in protecting these claims and reimbursements from RAC attacks.
RAC University has a course designed to help you and your facility better understand the contractual and regulatory differences between observation status versus inpatient status, and identify the processes that must be implemented to catch these kinds of costly errors.

The course is called Observation versus Inpatient. You can find it here at RACUniversity where you will also be able to watch a short preview of the course.



Chuck Buck

Chuck Buck is the publisher of RACmonitor and is the program host and executive producer of Monitor Monday.

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