Medicare rules and regulations regarding acute care inpatient, observation and treatment room services are outlined in the Medicare Internet-Only Manuals (IOMs). The references listed below are provided for guidance.
In addition to the references below, please visit the Evaluation & Management (E/M) Center of the Novitas Solutions website to find more information about physician services billing. The E/M Center is located on the Novitas website under Evaluation & Management at https://www.novitas-solutions.com.
CMS Reference Materials
- CMS IOM Publication 100-01, Medicare General Information, Eligibility and Entitlement Manual, Chapter 5 Section 10.2 Admission of Medicare Patients for Care and Treatment.
- CMS IOM Publication 100-02, Medicare Benefit Policy Manual,
CMS IOM Publication 100-04, Medicare Claims Processing Manual,
- Chapter 1, Section 10 Covered Inpatient Hospital Services Covered Under Part A. This is the primary reference for Medicare inpatient status determinations.
- Chapter 6, Section 10 Medical and Other Health Services Furnished to Inpatients of Participating Hospitals.
- Chapter 6, Section 20.1 Limitation on Coverage of Certain Services Furnished to Hospital Outpatients.
- Chapter 6, Section 20.2 Outpatient Defined. This discusses the appropriate billing of "Day Patient".
- Chapter 6, Section 20.6 Outpatient Observation Services.
CMS IOM Publication 100-10, Quality Improvement Organization Manual, Chapter 4, Section 4110 Admission/Discharge Review.
CMS 1599 – F. Fed Reg Vol 78. No 160. Monday August 19. 2013. Page 50944-50952. Two Midnight Rule.
Federal Register; 65 FR 18457
- Chapter 1, Section 50.3 When an Inpatient Admission May Be Changed to Outpatient Status.
- Chapter 3, Section 10.4 Payment of Nonphysician Services for Inpatients.
- Chapter 3, Section 140.2.3 Case-Mix Groups.
- Chapter 4, Section 290 including 290.1 through 290.6 Outpatient Observation Services.
- Chapter 30 Section 20.1 LOL Coverage Denials to Which the Limitation on Liability Applies.
The determination of an inpatient or outpatient status for any given patient is specifically reserved to the admitting physician. The decision must be based on the physician's expectation of the care that the patient will require. The general rule is that the physician should order an inpatient admission for patients who are expected to need hospital care to extend through two midnights or longer and treat other patients on an outpatient basis.
As per CMS IOM Publication 100-04, the Medicare Claims Processing Manual, Chapter 1, Section 50.3.1: “Patients are admitted to the hospital or CAH as inpatients only on the recommendation of a physician or licensed practitioner permitted by the State to admit patients to a hospital." For more detail, see the hospital Conditions of Participation (CoP) at 42 C.F.R. §482.12(c). In some instances, a physician may order a beneficiary to be admitted as an inpatient, but upon reviewing the case, the hospital’s utilization review (UR) committee determines that an inpatient level of care does not meet the hospital’s admission criteria.
According to the CMS Publication IOM 100-04, the Medicare Claims Processing Manual, Chapter 1, Section 50.3.2:
“In cases where a hospital or a CAH's UR committee determines that an inpatient admission does not meet the hospital’s inpatient criteria, the hospital may change the beneficiary’s status from inpatient to outpatient and submit an outpatient claim (bill type 13x or 85x) for medically necessary Medicare Part B services that were furnished to the beneficiary, provided all of the following conditions are met:
- The change in patient status from inpatient to outpatient is made prior to discharge or release, while the beneficiary is still a patient of the hospital;
- The hospital has not submitted a claim to Medicare for the inpatient admission;
- The practitioner responsible for the care of the patient and the UR committee concur with the decision; and
- The concurrence of the practitioner responsible for the care of the patient and the UR committee is documented in the patient's medical record."
"When the hospital has determined that it may submit an outpatient claim according to the conditions described above, the entire episode of care should be billed as an outpatient episode of care on a 13x or 85x bill type and outpatient services that were ordered and furnished should be billed as appropriate."
The section further gives the instruction: “When the hospital submits a 13x or 85x bill for services furnished to a beneficiary whose status was changed from inpatient to outpatient, the hospital is required to report Condition Code 44 on the outpatient claim.”
Per the manual: "If the conditions for use of Condition Code 44 are not met, the hospital may submit a 12x bill type for covered 'Part B Only' services that were furnished to the inpatient. Medicare may still make payment for certain Part B services furnished to an inpatient of a hospital when payment cannot be made under Part A because an inpatient admission is determined not to be medically necessary. Information about 'Part B Only' services is located in Pub. 100-02, Medicare Benefit Policy Manual, chapter 6, section 10. Examples of such services include, but are not limited to, diagnostic x-ray tests, diagnostic laboratory tests, surgical dressings and splints, prosthetic devices, and certain other services." The Medicare Benefit Policy Manual includes a complete list of the payable 'Part B Only' services."
Billing and coding of physician services is expected to be consistent with the facility billing of the patient’s status as an inpatient or an outpatient.
Observation services, standing orders, outpatient surgery:
Per the manual: "observation time begins at the clock time documented in the patient's medical record, which coincides with the time that observation care is initiated in accordance with a physician's order."
Observation services generally do not exceed 24 hours. It should be very rare that observation services should exceed 48 hours; usually they will be less than 24 hours in duration.
Per the manual: "General standing orders for observation services following all outpatient surgery are not recognized. Hospitals should not report as observation care, services that are part of another Part B service, such as postoperative monitoring during a standard recovery period (e.g., 4-6 hours), which should be billed as recovery room services." Observation services should not be ordered by the physician for future, elective outpatient surgeries.
Billing and coding of physician services:
Physician services are expected to be billed consistent with the patient's status as an inpatient or an outpatient. (Please see our E/M Center described above for detailed information.) Because patient status may change prior to discharge, communication among those involved in the care of the patient is essential. If a physician provider billing part B has submitted a claim and learns that the patient's status has changed, the claim should be resubmitted.
Notice: It is not appropriate to bill Medicare for services that are not covered as if they are covered. When billing for non-covered services, use the appropriate modifier.
Initial observation services are reported using the initial hospital inpatient or observation care CPT codes 99221-99223 when the patient has not received any professional services from the physician or other qualified health care professional or another physician or other qualified health care professional of the exact same specialty and subspecialty who belongs to the same group practice during the stay.
If the initial inpatient or observation care service is a consultation service the consultant should report subsequent hospital inpatient or observation care codes 99231-99233.
Observation services initiated on the same date as the patient's discharge are reported by the primary care physician as observation care CPT codes 99234-99236.
Observation discharge services are reported using CPT codes 99238 or 99239 if the discharge is on other than the initial date of observation care. These procedure codes include all services provided to a patient on the day of discharge from outpatient hospital observation status.
A transition from observation level to inpatient does not constitute a new stay.
Subsequent observation care is reported per day using CPT codes 99231-99233. These codes include review of the medical record, results of diagnostic studies and response to change in patient status since the previous physician assessment.
CPT codes 99234-99236 are used to report hospital inpatient or observation care services provided to patients admitted and discharged on the same date of service. These codes require two or more encounters on the same date, one being an initial admission encounter and another being a discharge encounter.
Prolonged hospital inpatient or observation care evaluation and management service(s) beyond the total time for the primary service (when the primary service has been selected using time on the date of the primary service) should be reported with HCPCS code G0316. HCPCS code G0316 should be listed separately in addition to CPT codes 99223, 99233, and 99236.