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RM: If a patient begins with an observation order and it’s determined that they meet inpatient criteria from the time of admission, can the order be changed to full admit at the time of admission?

BV: CMS and contractors (auditing bodies) have put a lot of emphasis on status orders, I would be very cautious in doing any type to retrospective orders.  Admission order is a RAC approved issues in all four regions.  Unless it was very clear that the intent was for inpatient admission I would not change.

RM: If a provider has a patient in observation for three days and then the physician changes the status to inpatient on the third day, is the entire stay considered inpatient for billing purposes?

BV: For billing purposes the time prior to the inpatient order is rolled into the inpatient stay and paid under the Part A claim.

For regulatory purposes the day the inpatient admission order is written is day one of the inpatient status, and discharge day is not counted in the length of stay.  Time spent in observation is an outpatient status and is not counted in the length of stay.

RM: Do you see a trend in patients being retroactively changed to observation during the stay?  What are your recommendations?

BV: I believe you would be referring to the use of Condition Code 44, where the patient’s status that was initially an inpatient is changed to an observation.  Medicare does allow this to occur but only if all conditions to the regulation apply.  Is there a trend that is occurring too often?  Yes, CMS intent is that it should be in a “rare occasion.”

RM: Are charges declined if the observation order is written after the discharge order?  Do we have to have an observation order written?

BV: Yes, you must have an order to bill for observation.  Observation is also reported by one-hour units of service and the regulations state the following:

Time begins at the clock time documented in the patient’s medical record, which coincides with the time that observation services are initiated in accordance with a physician’s order for observation services.


RM: What is your opinion on the use of case management protocol as the body determining the true status?


BV: Case management protocol can work if there is a process to support a timely determination and then most importantly the confirmation by the physician. The ultimate responsibility is the physicians.  The patient cannot be considered an inpatient until a physician has signed off on the admission order.  Each individual organization would need to look at their process and staffing to see if this is feasible.  The idea is respectable but the implementation is what can get hospitals in trouble

RM: Is there any data to show percent case by disease when admitted really were observation status?


BV: Are you receiving the “new” PEPPER, Program for Evaluating Payment Pattern Electronic Report?  PEPPER has been reinstated and is provided by TMF Health Quality Institute, which is under contract with CMS to provide comparative data reports to hospitals and to MAC/FI in support of efforts to reduce Medicare fee-for –service improper payments.  The reports cover both coding and medical necessity. According to the 2010 PEPPER user’s guide, 41 percent of all 2007 admission denials involved one-day stays so the PEPPER focuses in on one-day stay data.  Chest pain cases top the list but it will also give you medical and surgical cases.


RM: Thank you, Barbara for your time in answering a few of these important questions. We’ll be looking forward to your encore presentation, “Who Is and Who Isn’t an Inpatient: How to Get a Grip on Your Observation Cases” on November 11, 2010.


About the Author

Barbara Vandergrift, RN, BSN, MA, is a senior healthcare consultant with Medical Learning, Inc. (MedLearn), St. Paul, MN. MedLearn is a nationally recognized expert in healthcare compliance and reimbursement. Founded in 1991, MedLearn delivers actionable answers that will equip healthcare organizations with their coding, chargemaster, reimbursement management and RAC solutions.

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About RACUniversity Webinar

In the interest of offering relevant information on issues related to the Recovery Audit Contractors and other third party auditing entities, RACUniversity, offers a continuing series of Webinars. Registration to attend the forthcoming Webinar, “Who Is and Who Isn’t an Inpatient: How to Get a Grip on Your Observation Cases,” here.



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