Inpatient versus Observation Status – Make A Call!

By Steve Adams, MCS, CPC, CPC-H, CPC-I

Only physicians can make the initial decision on if a patient is to be admitted as an inpatient or for observation.  However, since the reimbursement to the provider is typically the same regardless of their decision to admit to inpatient or observation, they often overlook the requirements the hospital must consider before making the same decision.  It’s important to remember, the physician’s coding must reflect the status hospitals bills.

The problem is most physicians rarely understand the CMS definition of what allows a patient to meet inpatient or observation (outpatient) status.  As a result, when CMS matches up a claim and sees the physician submitted their services as inpatient and the hospital submitted their services as observation – there is a problem.  It’s therefore not unusual for a physician to receive a request for recoupment if the services they billed reflected inpatient services compared to the hospital’s billing of services as “observation” based on CMS guidelines.

So what’s the solution – make a call.  In order to avoid lost revenue and decrease the likelihood of a post-payment RAC review, hospitals hire utilization reviewers / case managers who verify a patient meets admission criteria prior to the hospital’s billing of a claim for those services.  If the patient fails to meet the inpatient status requirements, the patient is placed in and billed as an observation stay.

The typical scenario might be something like this:  The utilization reviewer / case manager finds a discrepancy in what the physician has ordered compared to the CMS guidelines which ultimately are used to determine the patient’s status during their stay in the hospital.  When this occurs, the utilization reviewer / case manager will ask a provider to reconsider their order.  The hospital will then update their system to reflect the appropriate status of the patient during their stay in the facility.

My recommendation remains the same as it has for years – prior to submitting any physician charges to Medicare for hospital services, I simply check with the hospital to determine the “status” of the patient.  If the hospital indicates the patient did not meet the criteria for inpatient status we submit the claim as an outpatient observation service.

If your hospital has an internal billing software system, ask if you can have access to the specific section within the system that allows you to see the status of the patient’s stay.  If that is not a viable option – make the call to the utilization review / case manager department and simply ask them the status of the patient prior to submitting your claims.

Form a coding standpoint, documentation for an initial visit H&P matches code per code to the services identified as observation services.

For example each of these codes have the same documentation requirements – changing the code does not require additional provider documentation and reimbursements are very similar:

Initial                            Initial                            Same Day Inpatient/Outpatient

Hospital                        Observation                  Admit & Discharge


99221               =          99218               =          99234              

99222               =          99219               =          99235                          

99223               =          99220               =          99236                          


Subsequent                   Subsequent                   Discharge         Discharge

Hospital                        Observation*                 Inpatient           Observation     


99231               =          99224                           99238      =       99217

99232               =          99225                           99239      =       99217                          

99233               =          99226


So here we go – your doctor admits Mr. Jones into the hospital for three days and submits the following codes for billing:

99222 – initial inpatient visit moderate decision making

99232 – subsequent inpatient visit moderate decision making

99238 – discharge less than 30 minutes

You contact case managers at the hospital prior to submitting the claim (or validate on the hospital system) and they tell you that Mr. Jones did not meet the CMS requirements for inpatient status and that he was subsequently changed to observation.  The new codes would be:

99219 – initial observation visit moderate decision making

99225 – subsequent observation visit moderate decision making

99217 – observation discharge

Good news, reimbursement is essentially the same and the documentation requirements also remain the same for the services.


*Requires you to be the provider that placed patient in observation

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