Coding confusion

A reader strives for clarification on the distinction between observation and inpatient care.


A recent “Coding Corner” column by Dr. Richard Pinson attempted to de-mystify the distinction between observation and inpatient levels of care by providing five circumstances to consider for observation status. I believe three of these require clarification.

1. “Treatment and/or procedures require no more than 24 hours to complete (weekends or other scheduling delays are not sufficient reason for inpatient admission).”

This phrasing suggests that length of treatment or testing is a factor in determining which status to assign. However, observation status is determined by the clinical presentation that warrants intervention in the first place, not the treatment or procedures themselves. For example, if a patient is admitted with substernal chest pain and requires a nuclear stress test that will take more than 24 hours, he or she should not necessarily be placed in inpatient status.

2. “It is unsafe for the patient to return home or to the current care setting, and arrangements for a safe discharge setting need to be made (unavailability of lower level of care is not sufficient for inpatient admission).”

Patients brought to the hospital for predominantly “social” reasons are not appropriate for inpatient status, but observation status is not appropriate here either. Observation status would only be appropriate if the patient's clinical condition warrants it.

For example, a patient without acute medical illness whose family can no longer care for her due to worsening dementia would not qualify for observation or inpatient status. However, observation status might be appropriate to determine the cause of symptoms in a patient with dementia and an acute change in mental status with worsening agitation or confusion.

3. “The patient is having an uncomplicated outpatient procedure requiring extended care or observation.”

Postoperative recovery time is bundled into the Medicare payment for a service, so if an outpatient procedure goes as planned, the correct status would be “ambulatory surgery” or “short procedure unit” (the term varies by individual hospital language). If a patient requires care beyond a normal recovery period (i.e., 6-8 hours), then it is important to ascertain if the reason is related to a clinical need (e.g., hemodynamic instability) or a social need (e.g., time of day). If the former is true, then the patient may qualify for inpatient status, but if the latter is true, the patient should not be admitted to either inpatient or observation status because there is no clinical reason to do so.

One additional comment may be confusing, as well:

“When in doubt, admit to observation since conversion to inpatient status is a simple process.”

Conversion to inpatient status may be simple, but its implications cannot be minimized. Medicare guidance indicates that the status should be changed only if a patient's clinical condition warrants such a change. If hospitalists' default position is to admit to observation, inappropriate use of observation orders may increase, exposing a facility to an audit. Conversion from observation to inpatient because an initial order was incorrect also may be problematic because a patient may only be made an inpatient if she has current clinical signs and symptoms that warrant inpatient care.

To clear up the confusion, hospitals should have front-line case managers who can assist in status determination. This may pose an undue burden on some hospitals but can save money in the long run by avoiding audits.

Frank L. Urbano, MD, FACP
Philadelphia

Richard Pinson, MD, FACP, replies: I thank Dr. Urbano for working so thoughtfully on this question. Let me attempt to clarify my opinions about CMS inpatient advice.

CMS does advise physicians to use a 24-hour benchmark for deciding about inpatient vs. observation services. The patient should have severity of illness and intensity of service requiring at least 24 hours of inpatient care. Necessary treatments and procedures, including the time they take, are a component of intensity of service. Dr. Urbano's example of a stress test illustrates a scheduling delay that does not support inpatient admission as cited in my column.

Patients who cannot safely be released from the hospital but have no acute condition should not be inpatients. The only alternative is observation care with prompt disposition.

Patients undergoing an uncomplicated outpatient procedure requiring extended care or observation should not be inpatients, but may be assigned to “observation.” Dr. Urbano is correct that neither the hospital nor the surgeon can bill “observation” codes in this situation, but line item outpatient charges are payable. Patients with a significant complication after outpatient procedures often qualify for inpatient admission.

I agree with Dr. Urbano that hospitalists should not routinely default to observation care. My column was intended to help hospitalists make the correct decision, but if inpatient status is not clear, observation care is preferred to “defaulting” to an inpatient admission. Inappropriate use of observation orders may create audit risks but is not nearly as serious as inappropriate inpatient orders.

CMS is very concerned when Medicare patients stay in observation more than 48 hours since beneficiaries have to pay the 20% co-pay for all observation services, and it expects the patient to be either discharged or admitted as an inpatient within 48 hours.

If patients have no reason for being in the hospital, they should be discharged. If no discharge disposition is possible, the patient should be given an Advanced Beneficiary Notice of Noncoverage (ABN) and become personally responsible for all further charges—and the Medicare claim would indicate this status.