Again, it bears repeating, we are discussing “contractual” language, not “clinical” language, because that is what a RAC cares about – or at least, that’s what they focused on during the Demonstration, and they have identified the documentation of medical necessity pertaining to status designations as a significant focus of the permanent RAC program that is now in full swing in some states.

Inpatient Status According to CMS

In a later article, we will focus on what the CMS definition is for observation and outpatient status. In this one, however, we want to give you a sense of what the CMS definition is of an inpatient. For that, we quote directly from their manual:

“An inpatient is a person who has been admitted to a hospital for bed occupancy for purpose of receiving inpatient hospital services. Generally a patient is considered an inpatient if formally admitted as an inpatient with the expectation that he or she 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 hospital and not actually use that hospital bed overnight. The decision to admit a patient to a hospital is a complex medical judgment which can be made only after a physician has considered a number of factors, including the patient’s medical history and current medical needs.”

As you read that, you might see where some of the confusion comes from, when trying to understand this from the clinicians’ perspective, as it relates to defining “medical necessity” for the purposes of CMS payment. So, now you can see the difficulty in proper case assignment of the inpatient or outpatient status.

This is the hallmark of understanding why information, education, and providing detailed support to the physicians in making these status assignments is so important
, and why we have said it is critical for getting reimbursed and then keeping that reimbursement.


What Needs to Happen

The keys, again, are two considerations: (1) the status must meet established criteria, according to whatever criteria the facility is currently using to correctly identify an inpatient admission, and (2) the documentation must clearly and sufficiently support the inpatient admission criteria, as noted by the admitting or primary care physician.

To protect reimbursements from audits, these are some things that must be clearly reported in documentation:

  • A clearly worded order to place in and discharge from inpatient status;


  • The physician did oversee and document, in admission, progress and discharge notes, the care of the patient while an inpatient;


  • The physician did use appropriate criteria to determine that the patient would benefit from inpatient status and care.


The above is not an exhaustive list of what needs to be documented, of course. We are only concerned, here, with contractual language, as it pertains to reimbursements.


Assistance Can Be Offered

A case manager or even a member of the Nursing staff can assist the physician in determining the medical necessity, as defined by the admission criteria being used at the facility, for either inpatient or observation/outpatient status designation.

Remember, this is a contractual need, for purposes of being reimbursed by Medicare, and is not a clinical judgment, at all.

The status designation is not intended in any way to discourage or even delay care getting to the patient. In some facilities, where a case management protocol is being implemented, physicians may be encouraged to assign and document a status designation, per the established criteria and case management protocol. A case manager would later advise the physician on the status designation, and the physician would then confirm it, in the medical record.

This does not affect the care being provided to the patient –
it does, however, directly affect the reimbursements for both the physicians and the hospital.

Specific Examples Offered via Webinars

RAC University has a course designed to help you and your facility better understand the contractual and regulatory differences between observation versus inpatient status, and identify the processes that need to be implemented to catch these kinds of costly errors.

The course is called Observation v. Inpatient.  You can find it on the RAC University Featured Course Page at RACUniversity, where you will also be able to watch a short preview of the course.

Also, in the coming weeks, RAC University and eduTrax will be offering a live webinar, detailing how to handle status designations in the difficult area of 1-Day Stays for Cardiac Services.

Keep watching your inbox for an email about this key webinar.


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.

Patricia Dear is Chief Executive Officer and President of eduTrax®

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