The problems associated with billing cancelled elective surgeries never seem to go away. The rules for billing for such surgeries are fairly straightforward, with modifiers available to indicate if the cancellation occurred before or after the induction of anesthesia, and hospitals are able to bill for any portion of the surgery that was completed.

The story is different with inpatient surgery. Despite educational efforts by the Medicare Administrative Contractors (MACs) in clarifying billing for inpatient elective surgery, an audit by the U.S. Department of Health and Human Services (HHS) Office of the Inspector General (OIG) published in August 2013 found an 80 percent error rate in billing such surgeries. The OIG recommended that the Centers for Medicare & Medicaid Services (CMS) work with providers to reduce that rate by strengthening guidance, noting that in 80 of the 100 claims reviewed in which a patient was admitted for an elective inpatient surgery, there was no evidence of a condition that warranted inpatient admission. The OIG also noted that because CMS has not issued specific guidance, MACs and hospitals have been applying general guidance, with conflicting interpretations and inconsistent billing practices both prominent.

What are the rules regarding billing cancelled inpatient elective surgeries? If the hospital bills the cancelled surgery as an inpatient admission, it is instructed to bill the diagnosis warranting the surgery as the primary diagnosis, then use one of three V codes (V64.1-V64.3) to indicate the reason for cancellation and the diagnosis that warranted the cancellation. If the cancellation occurred after anesthesia had been initiated, the hospital could bill the ICD-9-CM procedure code for the planned surgery, and the hospital would receive a payment to compensate for the resources expended. But if the cancellation occurred before anesthesia was initiated, the hospital would not bill for the procedure at all and would get a lesser payment. But should the hospital bill as inpatient when the surgery was never performed?

According to the OIG, if an elective inpatient surgery is cancelled because the admitted beneficiary is not ready for surgery on the basis of a preoperative examination or test that disclosed an abnormality making the surgery inappropriate (or because the patient simply decided not to proceed with surgery) and no other condition exists that warrants inpatient admission, the patient’s status should be changed to outpatient. The OIG indicated that “because the inpatient admission would not have been medically necessary if the preoperative examinations had occurred before the admission, they were not medically necessary after the admissions occurred.” CMS regulations are clear that once a patient is admitted as an inpatient, his or her status only can be changed to outpatient through the use of the steps outlined in 42 CFR §482.30, with review by the utilization review committee and physician concurrence. If these steps are not performed prior to discharge, the status remains inpatient.

As an example, if the patient arrived for a scheduled hip replacement surgery and a urinalysis revealed a urinary tract infection, causing the surgeon to cancel the surgery, the urinalysis is considered an abnormal preoperative test, meaning the patient should not have been admitted with an abnormal test result. The OIG feels that in this case, the hospital’s utilization review process should be leveraged to revert the inpatient admission to outpatient. If the patient was already sent home, the hospital could use the self-denial process and re-bill as part B. On the other hand, if the patient arrived at the hospital and was admitted for surgery, and when placed on a cardiac monitor was found to have a significant arrhythmia, inpatient admission may have been warranted based on the presence of a new arrhythmia.

What is a simple solution to this problem? As you know, CMS allows inpatient orders to be written in advance of inpatient surgery, indicating that the orders become valid when the patient is formally admitted as an inpatient. In most hospitals, the admission becomes “formal” when the patient arrives at the hospital for the surgery and is registered, using the date and time of arrival noted on the billing face sheet. But this is not a regulatory requirement; hospitals are free to define the point of formal admission for elective surgery admissions as they see fit. So to avoid having to deal with the billing problems associated with surgery that is cancelled on the day of the visit due to abnormalities discovered after the patient arrives, hospitals should develop a written policy indicating that patients who are being admitted for elective inpatient surgery are considered formally admitted once anesthesia induction has begun.

Induction of anesthesia does not take place until both the surgeon and anesthesiologist have approved the surgery, so if a test such as a urinalysis, pregnancy test, or prothrombin time is performed and yields abnormal results, causing a cancellation of the surgery (or, again, if the patient decides at the last minute not to proceed with the surgery), the patient is still considered an outpatient. As such, the hospital can bill for the outpatient services provided and will not have to take the multiple steps necessary to perform a Condition Code 44 to change the patient’s status, self-deny the inpatient admission if the Condition Code 44 is missed, or risk billing an inpatient stay with a cancelled surgery that has an 80 percent chance of being found to be noncompliant.

If anesthesia induction has started, per the aforementioned policy, the patient would now be considered an inpatient – and if the surgery is subsequently cancelled, the hospital can bill for a cancelled inpatient surgery, as at that point it has expended significant resources and will need to sterilize the room and equipment for subsequent use. Of course, hospitals also have the option of using the leave-of-absence process, but the uncertainty of the date of the rescheduled surgery often leads hospitals to avoid this method.

Because elective inpatient surgery patients are all admitted on the day of surgery, waiting until the induction of anesthesia to declare the patient “formally admitted” will not change the billing of the number of days of the inpatient stay, and therefore it will not affect the patient’s part A benefit days or eligibility for the part A skilled nursing facility benefit. But it will protect the hospital from audit risk and a potential OIG investigation.

A policy such as this, which allows a hospital to avoid an audit and receive revenue by remaining compliant, is one that should be embraced universally.

About the Author

Ronald Hirsch, M.D., is a vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic.

He is a member of the American Case Management Association and a Fellow of the American College of Physicians.

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