Manual changes related to condition code 44

I’d like to turn my attention to the manual changes related to condition code 44, as promised. Overall, the changes were designed to incorporate discussion and FAQs that were previously published in MLN Matters Article SE0622. In this respect, the changes to the manual have very few surprises. Almost everything added came directly from SE0622 and nothing added was really anything new. With that said, however, I do think that hospital case managers and anyone involved in condition code 44 cases or billing for cases with changed status should review the changes carefully to be sure they are following all the guidance provided.

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One of the disappointing things about the changes is that they did not address the issue of whether the period of time from the inpatient order up to the time the patient is changed to outpatient and the observation order is written can be billed as observation time. The language stating that the entire episode of care should be billed as outpatient remains unchanged and nothing was added to clarify it. However, if we carefully consider the other changes made to the observation sections, I think we can discern that CMS does not mean for these hours of care to be billed as observation.

The statement that the entire episode be billed as outpatient would seem to be saying that any service that was rendered during the episode of care should be billed under the outpatient billing, coding and coverage rules. For instance, if the patient had an x-ray during the time prior to being changed to an outpatient, this x-ray would be billed on a revenue code line with a HCPCS code, in accordance with any outpatient edits and policies that might exist. An order for the x-ray would be required and it would be subject to the outpatient medical necessity coverage rules like any other outpatient x-ray.

Applying this same analysis to the observation services, they would be billed as outpatient services on a revenue code line for observation with the appropriate observation HCPCS code. To be billed to Medicare they would have to meet all the coverage and billing requirements, just like the x-ray. This is where the new changes to the observation section of the manual perhaps add a bit of clarity, though the issue is still not crystal clear. The revisions to Claims Processing Manual, Chapter 4 § 290.4.1, indicate that G0378 is used when observation services are “ordered and provided”, with the word “ordered” added. Additionally, revisions to Claims Processing Manual, Chapter 4 § 290.2.2 indicates that time is calculated from when the services are initiated in accordance with the physician’s order. Both of these changes emphasize that an order is required for the observation services to be billed, and seem to indicate that order must be received before time for the services can be counted.

I know that many of you see the phrase “the entire episode of care should be billed as an outpatient episode of care” to mean that the hours prior to the change to outpatient and the observation order being written, when the patient was in inpatient status, are billable as observation. I believe this is based on the idea that the patient’s status should have been observation from the beginning. However, consider one other big change that CMS made to the observation sections of the manual. They eliminated any notion that observation was a status and emphasized that it is simply an outpatient service in their view. Therefore, in CMS’ view the patient can’t be in observation status, instead they are converted to outpatient status from the beginning of the episode and services received are billed as outpatient services. Under the new manual revisions, it seems that because we did not have an order for the outpatient service of observation during that time prior to the patient being changed to outpatient and the new order being written, we have no billable service of observation. However, once the order is written for observation at the time the status is changed to outpatient, we would begin to have observation services at that time.

I would like to reiterate from last week that I think these changes take the CMS construct of billing for observation farther away from how the care is being provided in the hospital and continue to be confusing for that reason. In this case, I realize it would seem to leave the hospital uncompensated for the care during the period of time up until the status is changed and observation ordered. This care may be substantial and now appears unbillable. However, I am taking part of my understanding of this from a discussion I had with a CMS representative back in March, who unfortunately declined to comment officially on behalf of CMS, but also actually indicated to me many of the changes and clarifications that were recently published in the manual and emphasized that observation is not a status, but rather simply an outpatient service in CMS’ view. I do plan to ask a question on the next Hospital Open Door Forum to hopefully get more clarity on this issue so stay tuned for more on this important issue.

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