Clinical vs. Payment Decisions

Providers are faced with making many types of decisions, some of which are not even clinical. Two types of decisions that may seem fairly straightforward are, in fact, very complicated: first, physicians’ clinical decisions regarding the care a patient needs; second, hospitals’ and physicians’ joint decisions on what setting in which those services are provided – inpatient, outpatient or observation.


Reimbursements are significantly different for each status, which only makes sense since more resources are needed to care for a patient with a serious condition requiring a stay of several days versus someone who is in the hospital for less than 24 hours.

Lucrative Denials for the RAC

Decisions about medical necessity may be questioned by a RAC, and this is not a new practice. But the RACs are being paid to look closer at Medicare claims than anyone has looked before. They can deny a claim simply based on a lack of sufficient documentation to justify the setting in which services were rendered. Plus, when RACs make this kind of denial, they likely are going to recoup the entire claim, not simply the difference between the correct versus the incorrect setting. RACs can reap many denials and subsequent commissions for them.


Criteria as Guidelines

While CMS does not require a hospital to use any specific set of criteria for judging status designation, it does require a hospital to be consistent and to use criteria consistently. Unfortunately, the consistent use of such criteria is not necessarily a remedy for this headache. CMS, and more specifically RACs, may decide that they don’t agree with how a hospital has applied criteria on a case-by-case basis. There just are no guarantees.


Essentially, the criteria are meant to be used as guidelines, not rules: they are intended to reflect clinical interpretations and analyses, not resolve ambiguities or provide the sole basis for making decisions regarding medical appropriateness. They are not meant for final clinical or payment determinations; nevertheless, they must be used.


Why the Dilemma?

What is the difference between the different status designations and why can choosing between them represent a dilemma? As mentioned before, there are three different designations we are concerned with: Inpatient, Observation and Outpatient. Most readers probably could define these types of patients easily — so, why is it a problem?


To begin to understand, take a look at these brief descriptions of the terms, pulled straight from CMS guidelines:


Inpatient: The status used to describe a patient who has been admitted to a hospital for bed occupancy, for the purposes of receiving inpatient hospital services, with the expectation that the patient will remain at least overnight and occupy a bed, even though it may later develop that the patient can be discharged or transferred to another facility and not actually use the hospital bed overnight. This kind of stay usually but does not always involves a multi-day stay.


Observation: The status used to describe a patient receiving hospital outpatient services to monitor and assess the patient for determination of a hospital admission or discharge. These services are those furnished by a hospital on the hospital premises, including the use of a bed, and at least periodic monitoring by nursing or other hospital staff, which are reasonable and necessary to evaluate an outpatient’s condition, or determine a need for a possible admission to the hospital as an inpatient.


Outpatient: The status used to describe a patient who has not been admitted to a hospital as an inpatient, but is registered on the hospital records as an outpatient, and receives services, rather than supplies alone, from the hospital or Critical Access Hospital. Where a hospital uses the category “Day Patient” for example – an individual who receives hospital services during the day and is not expected to be housed in the hospital at midnight – that individual is considered an Outpatient.


You likely would agree that all this is about as clear as mud. Nevertheless, assigning the correct status designation to cases is critical to reimbursement, especially for Medicare.

An Example from Real Life

After I presented the Webinar on this subject, a physician advisor who listened in sent me a very good question, providing the following details of a common encounter that represent a perfect example of the dilemma I’m describing:


A patient over the age of 65 comes to the ED and the physician writes this in the record (paraphrased here):


Patient presents with ischemic type of chest pain, non-diagnostic EKGs and serial enzymes, but has cardiac risk factors such as age, HTN, DM, Previous CAD and takes daily ASA.


Initially, the physician feels that the case should constitute an inpatient admission, because after applying TIMI criteria, the patient is at a high risk for sudden death and/or in need of urgent intervention.


But should the patient be admitted as an inpatient or placed in observation?


For this hospital, I was told that this was not an uncommon case, and therefore could impact their reimbursements significantly – positively or negatively, depending upon the outcome.


So here is the dilemma: Who decides the status, and how should it be decided?  Does the subjective interpretation of the physician meet the litmus test of inpatient status vs. observation or outpatient status? If not, this could affect reimbursement drastically.


To determine the proper course of action for this case, more information is needed in order to determine an appropriate status.


Below is a list of the information I would need before I could make an accurate determination. It is important to remember that these items must be stated in the documentation clearly in order to justify a particular status designation:

  • Patient presentation to ED with chest pain, “ischemic” in nature: was there any evidence of the ischemia, or is this statement based upon the MD’s clinical judgment of the pain?
  • Patient EKG presents with “non-diag ischemia seen”: did this show any change from previous EKGs? Was/were there new arrhythmia(s)?
  • Patient testing yielded presentation of “serial enzymes,” but which: negative or positive?
  • Were the presenting and ED VSS stable, or were there any changes; no dyspnea; what were the O2 sats? And were the lungs clear?
  • Was the pain relieved with SL ntrgl or IV?
  • Did you have reason to believe at the outset that the patient would “likely require more than 24 hours in the hospital?”
    • If the answer is “I don’t know,” why not start with Observation (in which treatment and/or procedures will require more than 6 hrs) and move up to Inpatient status?
    • If the answer is “yes”, is there a process to catch and change the status if the condition later is determined perhaps to be “non-Cardiac” (such as GERD) and could or should have been an Observation / Outpatient stay?


The patient’s underlying risk factors certainly are noteworthy in considering performing treatment and monitoring in the hospital, however the initial admission to Observation does not limit the degree of monitoring that can be applied (or in most hospitals, nursing care and monitoring does not change unless perhaps there is a dedicated ‘Short Stay/Obs unit); and allows more information pertinent to the current symptoms to be evaluated.


As the patient’s condition (and outstanding ordered tests) is‘observed and considered, the acuity of the current symptoms will be determined by you and perhaps others, with either potential post-stabilization discharge or further treatment in the possible face of declining cardiac status.


A Possible Solution

From the perspective of data entry on the billing end, in this instance it likely would be more appropriate to “admit to Observation” and then “change the status to inpatient” rather than implement the reverse process. The reverse requires someone or something to cue you to question the status meeting “inpatient criteria” and obtain status clarification before the patient is discharged, then hope the billing end changes the code(s) indicating outpatient versus inpatient, thus avoiding an unintentional “overpayment.”


Certainly the entire patient episode and risk factors should be taken into consideration, however, meeting “medical necessity criteria” still must follow payer guidelines and expectation (in this case, CMS’s).


Documentation and inclusion of what you feel a patient’s chronic conditions bring in the way of risk also need to be included, not assumed, because of the diagnosis. For example, peripheral neuropathy is a risk for patients with Diabetes Mellitus, but not all DM patients will experience the condition, nor would it necessarily impact each visit or complaint they may make to a hospital or physician.


Being Prudent

Wherever hospital case-management staff or you are in doubt (through which the use of the criteria your hospital uses will help to determine), prudence in the above situation can be implemented starting at a lower threshold and moving up to a higher one when and where it is possible to most accurately represent the situation. Attempting to defend an inappropriate higher threshold whereas a patient met a lower threshold of actual need for the care they sought will be time-consuming and expensive since it will come “after the fact” (perhaps even after a great length of time).


From a physician’s perspective, of course you want your patients treated according to your orders for care and for them to remain safe and closely monitored. But the question should be considered: does assigning a particular status necessarily change the care that this patient would receive in your institution? Likely, it does not.


Situations May Be Unique

The above encounter is not an easy, black-and-white situation, but since each patient situation is unique, such “easy” situations can be few and far between. Hopefully, our Webinar and the above analysis are beneficial to readers and listeners. While it would seem that these decisions should not be this difficult, nevertheless, with the increased scrutiny of need, intent, risk, documentation and payment, in fact many times they are a challenge.


Courses Available

We highly encourage our readers to concentrate on their education and training, especially concerning medical necessity and its documentation. Sign up for courses at RAC University, particularly our popular Special Offer, covering the main topics needed for correctly coding and documenting to support optimum reimbursements.


More LIVE Webinars

Also consider RAC University LIVE, a series of Webinars about how to protect reimbursements from RACs and other government auditors. These Webinars concentrate on avoiding common errors in documentation and coding, using many examples from audits performed by the experts at eduTrax. A facility or office can register for the live session for $195, purchase a CD (with a one-year site license) for $195, or obtain both for just $295.


Watch for news about more LIVE webinars and new courses posted to RAC University, powered by eduTrax®, to help prepare you and your staff for the coming storms that are the RACs.



About the Author

Patricia Dear has more than 30 years of experience in the healthcare industry, working within corporate healthcare entities, for-profit and non-profit hospital systems, legal defense and plaintiff counsel. She is a recognized national speaker on reimbursement and compliance. She is the president and CEO of eduTrax®.

Patricia Dear is Chief Executive Officer and President of eduTrax®

About the AuthorContact the Author


Share This Article