When Inpatient Claims Are Impacted by Outpatient Services

This week, let’s focus on coding guidelines associated with reporting diagnoses occurring during an outpatient visit subject to the Medicare Three-Day Payment Window Rule. Remember, the inpatient hospital claim must include all the diagnosis and procedure codes that meet the Three-Day Payment Window requirements.

Therefore, emergency department (ED) services, observation services, or outpatient procedures and their applicable diagnoses may be reportable on the inpatient claim. It is the inpatient coder who determines which of these “outpatient” diagnoses will be reported on the inpatient claim, based on their understanding of coding guidelines. Considerations for the inpatient coder include:

• Assignment of present on admission (POA) indicators;
• Determining if a condition resolved during outpatient care; and
• Accurately assigning the MS-DRG.

ICD-10-CM Official Guidelines for Coding and Reporting for the 2025 fiscal year (FY) state that “Present on admission is defined as present at the time the order for inpatient admission occurs – conditions that develop during an outpatient encounter, including emergency department, observation, or outpatient surgery, are considered as present on admission (p. 116).”

Where confusion may arise is regarding the reporting of Hospital-Acquired Conditions (HACs). A condition documented during the outpatient visit that precedes the inpatient admission is hospital-acquired, but will be reported with a present on admission (POA) indicator of Y (yes).

For example, if a patient receives a urinary indwelling catheter in the ED and is later diagnosed with a catheter-associated urinary tract infection, the associated complication code would be reported with POA = Y. Even though the catheter was placed during the same hospital visit, it was placed before the admission order.

Therefore, this case would not result in the reporting of a HAC. Where this can be a little tricky is when POA can impact the reporting of Patient Safety Indicators (PSIs) and other Medicare quality measures. If a patient requires inpatient admission due to acute respiratory failure that occurred during an outpatient procedure, acute respiratory failure is present on admission.

There are different guidelines for reporting outpatient and inpatient diagnosis codes. For example, a principal diagnosis is not reported in the outpatient setting. What isn’t crystal clear, in my opinion, is whether coders should use outpatient guidelines to report diagnoses documented during outpatient care, prior to the order for inpatient care, or if inpatient guidelines apply to the entire visit.

The introduction to the Coding Guidelines explains that Section III is for the reporting of additional diagnoses in the non-outpatient setting. The Three-Day Payment Window impacts how these outpatient services are paid for by Medicare, but should it also impact what diagnoses are reported, and how they are reported? The outpatient services are not erased, because they are reported on the inpatient claim, even though they may be obscured within the health record if only the admission date and not the encounter date is visible. Under Section IV of the Coding Guidelines, it states, “though the conventions and general guidelines apply to all settings, coding guidelines for outpatient and provider reporting of diagnoses will vary in a number of instances from those for inpatient diagnoses, recognizing that:

• The Uniform Hospital Discharge Data Set (UHDDS) definition of principal diagnosis does not apply to hospital-based outpatient services and provider-based office visits.
• Coding guidelines for inconclusive diagnoses (probable, suspected, ruled out, etc.) were developed for inpatient reporting and do not apply to outpatients (p. 110).”

Does that mean that unless a diagnosis that occurs during an outpatient visit can be reported as the principal diagnosis, follow general coding guidelines? Have we been doing it wrong all this time for these claims that are impacted by the Medicare Three-Day Payment Window? The Coding Guidelines do not distinguish diagnoses that are reportable to Medicare Part B from those reportable to Medicare Part A (which is the primary way Medicare distinguishes outpatient services, those payable under the Outpatient Prospective Payment System, or Medicare Part B, from those payable under the Inpatient Prospective Payment System, or IPPS/Medicare Part A). It just so happens that only an inpatient claim will be submitted, but the Medicare Three-Day Payment Window requires the reporting of the diagnoses and procedures that occurred during the outpatient visit on the inpatient claim. So, I ask again, does that mean that diagnoses occurring during the outpatient visit are reported using inpatient guidelines?

What about when we consider the following: “diagnoses that relate to an earlier episode which have no bearing on the current hospital stay are to be excluded (p. 109),” which is part of the guidelines for reporting additional diagnoses? It specifically references a “current” hospital stay, not an inpatient stay.

I know this may seem like semantics, but it is an important distinction. It is very important to be precise when addressing utilization review (UR) topics, the most important of which is determining if hospital services meet medical necessity for billing as an inpatient claim. The Medicare Two-Midnight Rule that establishes the criteria for inpatient medical necessity requires that either the physician expects the patient to receive two or more midnights of hospital services, or the patient crosses two midnights while receiving hospital services. The outpatient visit, whether medical or surgical, is part of the current hospital stay. It will be billed on the same hospital claim and within the dates of service on that claim. Should the emphasis be on an earlier episode of care, which does not technically apply to this scenario (since they are the same episode of care), or should coders focus on no bearing? I don’t find “bearing” to be a very precise term. Does that mean it has no impact? If so, wouldn’t that be a clinical decision, determining if a diagnosis documented in the outpatient setting impacts their inpatient care? Overall disease burden is a factor in determining if inpatient care is medically necessary, because it can complicate the treatment plan and expected response to treatment.

This article has probably taken an unexpected turn for you. It did for me, too. I had planned to focus more on examples of diagnoses that are only reported in the ED or surgical notes, but the more I thought about this topic, the more I realized I need better guidance before I can make any clear recommendations. I urge those who update the Coding Guidelines to consider consulting with clinical revenue cycle experts to modify the official language to better reflect how hospital services are provided and billed.