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EDITOR’S NOTE: This is the fourth and final installment in series of articles detailing a set of proposed recommendations to revise Medicare’s hospital admission regulations. Steven J. Meyerson, MD, submitted the proposed recommendations to CMS. In this installment, Dr. Meyerson discusses inpatient and outpatient surgery and procedures.

The current division of surgeries and procedures, as listed in Medicare’s Addendum B, serves the purpose of identifying the more complex, higher-risk procedures that must be performed under inpatient status. These “inpatient-only” procedures are designated by status indicator “C.” Procedures assigned status indicator “T” are of lower risk and are generally appropriate for outpatient surgery. Addendum E (the Inpatient Only List) lists procedures that must be performed in an inpatient hospital setting. Since a patient becomes an inpatient only with a physician’s order, an admission order is required prior to an inpatient only procedure. Lack of a pre-procedure inpatient admission order has led to many payment denials even when the surgery was clearly medically necessary, performed properly, and produced good outcomes in an acute-care hospital setting

While it is clearly appropriate that more complex, inpatient-only procedures must be performed in a hospital setting, the distinction between inpatient and outpatient surgery in terms of the facilities is artificial. Patients having outpatient surgery in an outpatient setting within an acute-care hospital receive treatment in the same pre-op suite, delivered by the same nurses as inpatients. Those outpatients also undergo surgery in the same ORs with the same nurses, surgeons and instruments; furthermore, they undergo short-term recovery in the same recovery rooms and overnight recovery in the same hospital beds as inpatients. Since this is the case, making the distinction between inpatient and outpatient surgery based on the presence or absence of an admission order is a technical billing issue that contributes nothing to patient safety. It is the setting that should count, not the order written before the procedure. A patient receiving outpatient surgery as an inpatient and a patient receiving inpatient surgery as an outpatient in virtually any hospital surgical department will receive equally safe and high-quality care. Logically, then, relying on physician admission orders to determine the appropriate care setting creates opportunity  for error and nonpayment, which does not reflect substandard or dangerous care.

This is not to say that an ambulatory surgical center or hospital outpatient surgery department located off a hospital’s main campus can provide the same level of care and services provided under the roof of the acute-care hospital. Services provided in these locations must be limited to the safest, most routine outpatient procedures, because patients treated at ASCs or outpatient hospital surgery departments, away from the main hospital, would not enjoy the immediate availability of the entire hospital’s services in the event of a mishap or unexpected complication.

B. Proposals for Inpatient vs. Outpatient Surgery and Procedures

1.    Minor surgical procedures (status indicator “T”) performed in the ED (such as suturing of lacerations or treatment of abscesses) or during an observation stay should not invalidate payments to hospitals for observation.

    • There is currently no payment to hospitals for observation when a patient has a status indicator “T” procedure performed on the day of or the day before observation. Observation requires a level of service beyond routine recovery, however, and should be reimbursed. The rendering of an outpatient procedure or surgery before or during an observation stay should not prevent the hospital from receiving payment for the other medically necessary services it provides, especially when the status indicator “T” procedure performed may not be related to the need for observation.

2.    For patients having status indicator “T” procedures performed in an operating room after a period of outpatient observation, observation should end when the patient arrives at the pre-op area (this will not apply to bedside procedures).

    • If observation results in a determination that outpatient surgery is required, at that point a decision on treatment has been made and the patient no longer should qualify for observation. Observation should end when the patient goes to the OR.
    • Following such a procedure, the current rules for recovery and observation following outpatient surgery would apply. Observation may be ordered if there is a complication or an unexpected clinical matter that prolongs or interferes with routine recovery.

3.    Status indicator “C” procedures may be performed only in an acute hospital setting. An admission order prior to surgery should be recommended, but not required. A patient having a SI=C procedure performed should be considered an inpatient, with the hospital paid under Part A regardless of the presence of a preoperative inpatient admission order.

    • It is the nature of the surgery and the setting that should count, not the admission order or the hospital registration. Lack of an admission order should not be a basis for denial of payment for medically necessary surgery.
    • The rendering of medically necessary inpatient surgery in an acute-care hospital would be an exception to the rule that a patient is admitted only on the order of a physician. An order for an inpatient-only procedure should suffice when an inpatient procedure is done in such a setting.



4.    The physician should be permitted to admit a patient as an inpatient when the physician expects that the patient will require a status indicator “T” procedure on an emergent or urgent basis for an acute medical condition (defined as surgery planned less than 24 hours following emergency admission).

    • The physician’s plan to perform surgery (based on the patient’s condition at the time of admission) must be documented in the medical record.
    • If the procedure is not performed due to new clinical information, a change in the patient’s condition, the recommendation of a consulting physician, or another such reason, the admission will nonetheless be approved and paid as inpatient care unless the patient is discharged in less than 24 hours in which case outpatient billing would be appropriate.
    • Whether the status indicator “T” procedure is performed in this setting or not, if the patient can be discharged safely in less than 24 hours, the stay would be billed as an outpatient service with observation. In this case, an order for observation would not be required and observation would start when the admission order was placed.
    • Urgent surgery carries higher risk than elective procedures, so such surgery should be done in the safest setting, namely inpatient. However, if the patient’s clinical condition improves or the patient’s surgery is uneventful, as long as a stay of longer than 24 hours is not required, outpatient Part B billing would be appropriate for the status indicator ”T” procedure and other billable Part B services.

5.    Patients would not be eligible for inpatient admission for status indicator “T” procedures based on co-morbidities and risk assessment unless those procedures are performed on an emergent or urgent basis following an ED or same-day office visit. The physician, however, may document the need for extended recovery after a pre-op risk assessment based on co-morbidities.

    • Current regulations allow admission for “outpatient” (status indicator “T”) procedures based on the patient’s co-morbidities and other risk factors. If there are no complications, these patients often go home without being subjected to a longer stay than a more stable patient. These short stays often are denied by RAC auditors as not medically necessary despite the admitting physician’s assessment of risk of adverse outcome. The same benefits of in-hospital monitoring available through inpatient admission for high-risk patients can be accomplished via extended outpatient recovery. Instead of admitting and paying the hospital a DRG payment for this monitoring period, the payment for an outpatient overnight stay would be considerably less costly, without compromising patient safety.
    • A new APC code will be required to pay the hospital for extended recovery when medical necessity has been documented and such recovery has been ordered preoperatively. This practice will replace admission for outpatient surgery based on risk assessment.

6.    If a patient requires inpatient admission for a serious complication or a new, acute medical problem following outpatient surgery, the entire stay should be considered an inpatient stay, beginning with the day of surgery as if the patient had been admitted pre-operatively as an inpatient.

    • This will complete the rules for reimbursement of outpatient monitoring of high-risk patients having outpatient surgery. If an adverse event requiring admission occurs, the hospital would be paid for the entire stay under Part A – but it is important that the patient not be penalized by failing to count the first day toward the three-day qualifying stay for SNF care. Hence, admission should occur at the time the patient is registered for an outpatient procedure when post-op admission becomes medically necessary.

7.    Hospitals should be paid for observation when it is ordered for minor complications following outpatient surgery and based on medical necessity.

    • There is currently no hospital reimbursement for post-operative observation. Post-op observation generally requires additional hospital resources beyond standard recovery, and thus should yield reimbursement.
    • A new APC code and reimbursement will be required to pay hospitals for medically necessary post op observation.

8.    Any patient not clinically stable for discharge after 24 hours of post-op observation following planned outpatient surgery may be admitted as an inpatient, with the entire stay considered an inpatient stay beginning with the day of surgery (as if the patient had been admitted pre-operatively). 

    • Outpatient surgery is intended for stable patients having minor procedures, with an expectation that they will be released in less than 24 hours. If a patient is not stable for discharge after 24 hours of observation due to a complication, inpatient admission should be allowed. This policy would mitigate the loss of revenue resulting from hospitals being barred from admitting for outpatient surgery based on patient comorbidities and risk assessments.

About the Author

Steven J. Meyerson, MD, is vice president of the Regulations and Education Group (“the REGs group”) for AccretivePAS®. He is Board Certified in Internal Medicine and Geriatrics. Before joining Accretive Physician Advisory Services in 2010 he served as the medical director of care management at Baptist Hospital in Miami, Florida. He has distinguished himself by contributing to the development of innovative service lines and managing education on Medicare regulatory compliance for AccretivePAS®.

Contact the Author


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Disclaimer: The content of this article does not constitute legal or clinical advice upon which readers may rely, and the appropriate professionals should be contacted if there are any questions regarding the content as it applies to the reader.

I Received a Comparative Billing Report – Now What?

Click to Read Part 3 of Medicare Hospital Admission Regulations

Click to Read Part 2 of Medicare Hospital Admission Regulations

Click to Read Part 1 of Medicare Hospital Admission Regulations

Join the conversation on Twitter. Do you have any comments or other suggestions for improving the Medicare Hospital Admission Programs? If so let us know at http://twitter.com/racmonitor by using #Meyerson


Steven J. Meyerson, MD, CHCQM-PHYADV

Steven Meyerson, MD, CHCQM-PHYADV, is the founder of Steven Meyerson Consulting. Dr. Meyerson is a nationally recognized expert and consultant in the physician advisor role, case management, and hospital Medicare compliance. He is board certified in internal medicine and geriatrics and serves on the board of the American College of Physician Advisors (ACPA). He edits and writes for the ACPA online blog.

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