Condition Code 44 – The Next Chapter
After CMS issued Transmittal 1803, we have continued to receive questions on the correct way to bill for outpatient services when Condition Code 44 criteria have been met. The next chapter of the story involves determining if and when observation begins.
After the provider has documented that Condition Code 44 requirements have been met and is able to “roll back” the patient’s status from inpatient to outpatient, the outpatient regulations begin to apply. According to Chapter 1 of the Medicare Claims Processing Manual, when the hospital has determined that it may submit an outpatient claim, the entire episode of care should be billed on a 13x or 85X type of bill for the services that were ordered and furnished during that period of time. However, in order to bill for medically reasonable observation services, the provider must obtain a timed and documented physician’s order. Because there wasn’t an actual order for observation at the time the patient was admitted as an inpatient, the provider cannot begin counting observation hours until one is obtained. The order for observation is not “retroactive” back to the time of the original inpatient admission order.
In a July 13 MedicareMentor post, we included an email clarification from National Government Services (NGS) confirming the need for and the timing of the observation order. After receiving inquiries from its providers, Noridian Administrative Services also sent out a notification on September 24 confirming this.
This is the example that was given: Patient A was admitted at noon on Sunday. On Monday afternoon it was determined that the patient didn’t meet inpatient criteria, the physician concurred, and the status was changed to outpatient. The outpatient status is considered to have begun at noon on Sunday. However, observation hours cannot be billed until the physician has written an order for observation. If the order was written at 2 p.m. on Monday, the hospital would begin the observation hours at that time. No observation can be charged between noon on Sunday and 2 p.m. on Monday.
In light of the previous RAC focus on observation billing, we encourage all providers to review the regulations and their current processes. Providers should contact their FI/MAC with any questions that they may have to ensure that observation hours are being billed correctly when condition code 44 is being submitted.
About the Author: 
Andrea Clark | Sep 29, 2009 | Reply
What does the hospitals do with the charges accumulated based on the initial admit order? Example above there are 26 hours of INPT charges before the order for OBSV services; how does the hospital bill for 26 hours or are we out of luck on the outpatient bill?
Ramona | Sep 30, 2009 | Reply
Thanks for the clarification on when the OBS hours begin. How do we decide on the dismissal time? Is it also when the physician writes the order, or when the patient actually leaves the floor?
Sheila | Sep 30, 2009 | Reply
I’m understanding the facility billing component – but what about the physician’s billing component when this occurs? The hospital can only report the outpatient services that occurred between the time the patient arrived until the transition to (order for) Observation.
Because the physician wrote an order for inpt – and now has changed the order, what does the physician bill for? There wasn’t an “admit” – so hospital inpt service EM isn’t appropriate – and the patient isn’t an OBS until the order is written. Does the physician bill the Office/clinic EMs for his service to ensure that the physician component matches the facility billing?
Carol Kendall | Oct 2, 2009 | Reply
Could you quote the source of the information re when to start counting observation hours? Our FI, Palmetto GBA, gave the exact opposite advise during a recent educational program. I am trying to get written verification re that.
Great question about how the physician would bill in this situation; am looking forward to that answer. We are probably going to have a process improvement team re the accuracy of admission and observation dates/times, and understanding all of the rules is definitly the first step.
Terry | Oct 4, 2009 | Reply
Regarding the the use of Condition Code 44 and the two day notification to patients, patients physician, and to the hospital, what form does the UR committee utilize?
Someone mentioned the Important Message form, but I was under the impression that the IM form is used when the patient has met inpatient med necessity and now is being discharged (giving the pt the info on the right to appeal the discharge). However, with the use of CC 44, we are notifing the patient of his/her status change from inpatient to outpatient observation and the financial impact this will have on him/her.
ananowell | Oct 5, 2009 | Reply
I would like to know if condition 44 is applied to Medicare MA plans. Are the conditions of participation different for this plans
Doc SJM | Oct 11, 2009 | Reply
CMS updated the Medicare Claims Processing Manual Chapter 4 and the Medicare Benefit Policy Manual Chapter 6 to clarify when to begin billing for observation services.
“290.2.2 Reporting Hours of Observation. Effective Date 07/01/09
Observation time begins at the clock time documented in the patient’s medical record, which coincides with the time that observation care is initated in accordance with a physician’s order.”
Some hospitals interpret “the time that observation care is initated in accordance with a physician’s order” to be the time of the first nursing note after the observation order is given. Others use the time of the order itself. Has CMS clarified which it is?