In order to remain in compliance with Medicare rules, and avoid denials by recovery audit contractors (RACs) and others, hospitals must reduce outpatient procedures performed during inpatient stays. To do so, management staff must establish and tighten internal controls to identify procedures scheduled during an inpatient stay that are not medically necessary in that setting. Such procedures result in a higher-weighted MS-DRG than is appropriate.

According to the June 2008 report entitled The Medicare RAC Program: An Evaluation of the 3-Year Demonstration, the financial risk per hospital for the above ranges from $385,000 to $1.5 billion. (See for this report.) To decrease or avoid this risk, hospitals must be aware of certain weak or missing processes and internal controls, such as those below.

Lack of Training

The need for information and education applies to all levels of staff involved in coding and documentation.

Physicians and case managers must receive training about the ICD-9-CM procedures that often occur in an inpatient setting even though they may not be appropriate. In addition to this training, hospitals must properly manage the appropriateness-of-setting process and determine those procedures appropriate to the inpatient setting and those that may be postponed safely until after discharge and scheduled as an outpatient.

Coders and clinical documentation improvement specialists (CDI) also need training about the appropriateness-of-setting issue. CDI specialists are working concurrently and, therefore, are in an opportune position to flag these cases for case managers to discuss with physicians. Coders can assist in the role of internal control prior to billing by assigning the correct ICD-9-CM procedure code and flagging the record for the case manager to review if there is any hint of documentation that indicates the procedure could have been performed as an outpatient. It would be more appropriate to remove the procedure from the claim (change the MS-DRG to the lower-weighted) than submit the claim at the higher-weighted MS-DRG.

In addition to training, it is essential to establish controls surrounding inpatient admission versus outpatient observation and corresponding physician admitting orders. Many of the procedures in question fall into the category of procedures that may be performed in an outpatient or outpatient observation setting. However, because of the ambiguity of the order, they are treated as an inpatient procedure.

According to the May 2008 comprehensive error rate testing (CERT) report (entitled Improper Medicare Fee-For-Service Payments Report), this error may have accounted for approximately $236 million in improper payment. The CERT report gives the following as an example of this error.

“A hospital billed for a short-term acute care inpatient stay. The case was determined to be a billing error and the payment was recouped because the provider billed this as an inpatient stay, however, the admission orders in the medical record indicated that an observation stay should have been billed.”

CMS Review Procedures

The Centers for Medicare & Medicaid Services (CMS) gives the following guidelines in the Medicare Program Integrity Manual, Chapter 6, Intermediary MR [Medical Review] Guidelines for Specific Services, Section 6.5.4: Review of Procedures Affecting the DRG.

The contractor shall determine whether the performance of any procedure that affects, or has the potential to affect, the DRG was reasonable and medically necessary. If the admission and the procedure were medically necessary, but the procedure could have been performed on an outpatient basis if the beneficiary had not already been in the hospital, do not deny the procedure or the admission. When a procedure was not medically necessary, the contractor shall follow these guidelines:

•    If the admission was for the sole purpose of the performance of the non-covered procedure, and the beneficiary never developed the need for a covered level of service, deny the admission;

•    If the admission was appropriate, and not for the sole purpose of performing the procedure, deny the procedure (i.e., remove from the DRG calculation), but approve the admission;

•    If performing a cost outlier review, in accordance with Pub. 100-10, chapter 4, §4210 B., and the beneficiary was in the hospital for any day(s) solely for the performance of the procedure or care related to the procedure, deny the costs for the day(s) and for the performance of the procedure; and

•    If performing a cost outlier review, and the beneficiary was receiving the appropriate level of covered care for all hospital days, deny the procedure or service.

See Pub. 100-02, chapter 1, §10 for further detail on payment of inpatient claims containing non-covered services. All medically unnecessary procedures represent quality of care problems as well as utilization problems and shall be referred to the QIO for quality review after claim adjustment is made.


Moving Out of Risk

Compliance begins by building a review team. Specifically, establish an internal review that is a joint effort between physicians, case management, CDI specialists and the coding departments.


Next, identify the ICD-9-CM procedure codes that could put your hospital at high risk. Those listed below often constitute the highest volume of procedures performed in an inappropriate setting:

39.50          Angioplasty, atherectomy of other non-coronary vessel
86.22          Excisional debridement
83.21          Biopsy of soft tissue
54.4            Lysis of peritoneal adhesions
74.4            Biopsy of bone
86.4            Radical excision skin lesion
40.1            Diagnostic procedure of lymph node
03.94-3 & 04.92-3 Spinal stimulator leads
33.27 vs 33.24 Transbronchial lung biopsy versus bronchial biopsy
39.27         Arteriovenous grafts for renal dialysis
39.93         Vessel to vessel cannula for renal dialysis

In addition, review the following MS-DRGs in your hospital. These often are the highest volume contributing to inappropriate setting:

166/167/168, 356/357/358, 423/424/425, 463/464/465, 515/516/517, 573/574/575, 576/577/578, 579/580/581, 622/623/624, 628/629/630, 673/674/675, 717/718, 742/743, 749/750, 802/803/804, 820/821/822, 823/824/825, 826/827/828, 829/830, 853/854/855, 856/857/858, 876, 901/902/903, 907/908/909, 939/940/941, 957/958/959, 969/970, 981/982/983, 984/985/986, 987/988/989.

On October 5, 2010, the RAC for Region D, HealthDataInsights, posted another area where hospital teams may need to increase their audit and education efforts: “minor surgery and other treatment billed as an inpatient stay.”

Claims billed with minor surgical procedures or other treatment will be identified for medical review based on improper payment risk for inpatient care when outpatient care was provided.

About the Author


Carol Spencer, RHIA, CCS, CHDA is a senior healthcare consultant with Medical Learning, Inc. (MedLearn®) in St. Paul, Minn. MedLearn is a nationally recognized expert in healthcare compliance and reimbursement. Founded in 1991, MedLearn delivers actionable answers that equip healthcare organizations with coding, chargemaster, reimbursement management and RAC solutions.


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