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A recent email from a Midwest hospital presented the following dilemma: “(Big national insurer’s) Medicare Advantage (MA) replacement plan is advising us that we have to use a condition code 44 on their claims when we change from inpatient to observation. And we do a lot of these, at their request! For some reason, I remember, that the discussion on a user forum was that condition code 44 does not apply to managed Medicare. Is there any reference by CMS (the Centers for Medicare & Medicaid Services) to this?”

The standard answer that is usually offered in response to this question is that CMS does not require MA plans to use condition code 44, but the MA plans rather are free to set their own requirements on hospitals.

The Medicare Managed Care Manual, Chapter 4, section 10.2 specifies that MA plans “must provide their enrollees with all basic benefits covered under original Medicare” but also states that “MA plans need not follow original Medicare claims processing procedures. MA plans may create their own billing and payment procedures as long as providers – whether contracted or not – are paid accurately, timely, and with an audit trail.”

In other words, MA plan enrollees must receive at least the same care as those covered under traditional Medicare, but CMS does not care how or how much the MA plans pays providers to provide that care. This MA plan actually has a published policy on this, reading: “When an inpatient admission is changed to outpatient, consistent with Medicare billing guidelines, a provider may submit an outpatient claim for all medically necessary services furnished during the stay only if all code 44 criteria are met (including any member notice requirements).”

But there is more to this question than meets the eye. Condition code 44 was instituted by CMS in 2004 to allow hospitals, through their utilization review process with the involvement of a physician member of the utilization review committee, to change a patient’s status from inpatient to outpatient. CMS set four requirements for this process: the patient must still be a patient in the hospital, the hospital must not have submitted a claim, the attending physician must agree with the determination and notification to the physician, and the concurrence must be documented in the medical record. If all of these are met, and as specified in 42 CFR 482.30(d) the patient, doctor, and hospital are notified, then the hospital may change the whole stay to outpatient and bill as such. Chapter 13, section 150.2 of the Medicare Managed Care Manual also requires the condition code 44 process when a hospital wishes to change a MA plan beneficiary’s status from inpatient to outpatient as determined by their utilization review process.  

But that is not what is happening here. In this case, the attending physician has admitted the patient as an inpatient, the patient’s inpatient status was affirmed by the hospital’s utilization review process with first- and second-level review as appropriate, and it is the MA plan that is requesting that the patient’s status be changed to outpatient. In this case, condition code 44 has no role here, as the determination is being made by the MA plan unilaterally. Rather, this situation is addressed in the notes section of 150, titled “Immediate Review Process for Hospital Inpatients in Medicare Health Plans,” which states, “if the Medicare health plan denies coverage of the admission, this guidance does not apply. Instead, the plan must deliver either the notice of denial of Medicare coverage (NDMC) or the notice of denial of payment (NDP). Appeals of this type of determination would follow the standard appeals process.”

In other words, if a hospital determines that a patient was properly admitted as an inpatient, as determined by their utilization review process, and the MA plan requests that the patient’s status be changed to outpatient, the hospital has two choices: talk to the attending physician and utilization review physician (and if they agree with the MA plan, then follow the condition code 44 process to change the status to outpatient) or stand by its determination that the patient was properly admitted as an inpatient and inform the MA plan that if it is not going to pay for the admission (and that the MA plan must furnish the patient either an NDMC or NDP). If this form is presented to the patient by the MA plan, the MA plan then can decline to pay the hospital for the admission. If the patient is not notified in writing by the MA plan, then the MA plan is legally obligated to pay for the admission.

If the patient is notified by the MA plan of the denial, encouraging the patient to file an appeal often results in more favorable outcomes, as the MA plans are required to report the number of patient appeals to CMS. The other option would be to keep the status as inpatient and accept a lower payment from the MA plan for the admission. As noted, CMS requires the plan enrollees to receive the same care, but hospitals are free to accept a lower payment for that care. It is also important that the hospital’s finance department and those that negotiate contracts be aware of the number of denials and attempts by the MA plan to avoid payment for medically necessary services so that the next contract can include provisions to avoid these MA plan tactics.

While many hospitals have battle fatigue from fighting MA plans for approval of admissions and payment, this analysis of the regulations may help hospitals finally be victorious by using the regulations as CMS meant for them to be used.

About the Author

Ronald Hirsch, MD, is vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the American Case Management Association and a Fellow of the American College of Physicians.

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You can read Chapter 13 of the Medicare Managed Care Manual online here: http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/mc86c13.pdf

You can find the NDMC and NDP forms and instructions online at: http://www.cms.gov/Medicare/Medicare-General-Information/BNI/MADenialNotices.html



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