Billing Guidelines for Hospital Inpatient and Observation Services

Understanding Non-Billable Procedures and E/M Services

hospital building view and medical equipment

Highlights

Bundled Services: Many services rendered on the day of admission are bundled with the initial hospital care.
Non-Billable E/M and Procedure Codes: Specific codes such as discharge management and outpatient consultations are not separately billable when provided on the same day as hospital admission.
Guideline Compliance: Proper documentation, adherence to Medicare guidelines, and understanding of coding limitations are essential for compliance and optimal reimbursement.

Overview

When billing for hospital inpatient or observation care, healthcare providers must navigate a complex landscape of evaluation and management (E/M) services and associated procedures. Medicare and other guidelines come with strict rules on which services can be billed concurrently and which must be bundled together under the day’s admission. The central theme in these billing guidelines is to avoid unbundling – that is, separating services that should be paid together as part of the initial hospital visit or observation period.

This article details the types of procedures and E/M services that should not be billed separately when a patient is admitted as an inpatient or placed under observation. Special consideration is given to same-day billing rules, bundled service codes, and compliance practices to avoid potential issues with claim denials or audits.

Key Areas of Non-Billable Services

1. Bundled Services and Same-Day Admissions

Initial and Subsequent Hospital Care Codes

The billing rules stipulate that when a patient is admitted as a hospital inpatient or placed under observation, the initial evaluation and management services rendered on the admission day are bundled into one comprehensive payment. For example, the initial hospital inpatient care codes (commonly 99221-99223) include all services provided on the day of admission. This means that any other E/M service provided on that same day by the same physician is not separately billable.

Similarly, for subsequent hospital care, codes (such as 99231-99233) cover additional services provided during the inpatient stay. The payment for these subsequent care visits is integrated with the overall billing for the patient’s stay and may be bundled with other services such as inpatient dialysis procedures (e.g., codes 90935-90947), depending on the clinical context.

Observation Services and Duration Considerations

Observation services also have specific guidelines regarding duration. Typically, if a patient remains in an observation setting for fewer than eight hours, the services rendered are not sufficiently extensive to warrant a separate billing under hospital inpatient or observation E/M codes. Instead, these short interactions might be appropriately billed using alternative outpatient or emergency department (ED) E/M codes, such as 99281-99285 or critical care codes when applicable.

2. Services Not to Be Billed Separately

Discharge Management Services

Discharge management codes (e.g., CPT codes 99238 and 99239) are specifically designed to capture the care provided during the transition out of the hospital. However, when a patient is admitted and the initial hospital visit already includes comprehensive care on the day of admission, such discharge management, if rendered on the same day, cannot be billed separately. This bundling ensures that all services provided during the hospital admission are unified under a single payment cycle.

Outpatient Consultations and Routine Evaluation

For patients admitted as inpatients or observed within the hospital, any outpatient consultation services or routine E/M services provided on the same day are subject to restrictions. For instance, if a consultation is done in an emergency department (ED) setting and the patient is subsequently admitted, the ED visit cannot be separately billed by the same physician. Additionally, an outpatient office visit conducted by a physician, when the patient is simultaneously undergoing inpatient or observation care, falls under the comprehensive services of the admission day.

The prohibition against separate billing for these services is crucial for preventing duplicate payments. The comprehensive initial care for the hospital admission is designed to cover all necessary medical evaluations and interventions by the initial admitting physician.

3. Procedures and Therapeutic Services

Therapeutic and Diagnostic Bundling

Therapeutic services, such as treatments related to chemotherapy, are not to be billed concurrently with hospital inpatient or observation evaluation services. In other words, if a patient receives certain therapeutic interventions as part of their overall inpatient care, these interventions are considered part of the bundled care package and should not be billed as standalone services on the day of admission.

Similarly, routine services that involve the preparation for and recovery from diagnostic testing are included in the payment for those diagnostic services. These preparation and recovery procedures are part of the diagnostic process and therefore are not appropriate for separate billing when tied directly to hospital inpatient or observation care.

Non-Billable Multiple Initial Care Codes

One of the critical guidelines for billing is that only one initial hospital care code can be submitted per specialty during a hospital stay. This rule is in place to avoid instances of multiple charges for services that are fundamentally a part of the single episode of care. As such, if multiple initial evaluation services occur on the same day, only one instance may be billed, ensuring that services already accounted for in the comprehensive initial care remain unbundled.

This restriction also applies to the use of ED visit codes by the same physician if it coincides with the initial hospital admission. The intention here is to consolidate the services provided on that day under a single, cohesive billing event.

Coding Specifics and Practical Implications

Documenting and Charging E/M Services

Accurate documentation is the cornerstone of compliant billing practices. Physicians and healthcare providers must meticulously record the nature and timing of each service rendered. In scenarios where multiple services are provided by the same physician on the day of admission, documentation must clearly indicate that these services are part of the overall care package. This not only supports the bundled billing but also protects against audits and potential billing errors.

It is also important to note that prolonged services exceeding the typical care time thresholds may qualify for additional prolonged service codes, but these too should be carefully applied. For instance, if a patient requires extended evaluation beyond initial care during the inpatient stay, the prolonged service codes are only to be appended if they exceed the time thresholds established by Medicare. These codes are designed for genuinely extended care and must not overlap with the one-time initial visit billing.

Place of Service (POS) Considerations

The appropriate use of the Place of Service (POS) codes is another pivotal aspect of billing in hospital and observation settings. Typically, observation services are billed using the outpatient hospital POS (often coded as POS 22). However, caution is necessary to ensure that the POS codes align with the actual services provided. Incorrect use of POS codes can lead to claim denials, particularly if the patient is in a transitional state between observation and inpatient.

For example, if an observation service rendered on the same day as inpatient admission mistakenly uses an office setting POS, the claim may face scrutiny due to the bundled nature of the inpatient services. Therefore, the accurate selection of POS codes not only complies with reimbursement rules but also reinforces the bundling and non-separability of services rendered.

Compliance and Best Practices

Both federal Medicare guidelines and private insurance standards emphasize the importance of compliance with bundled billing practices. Ensuring compliance is not merely about following a set of rules; it is about safeguarding against the risks of audits, recoupments, and potential payment denials.

Healthcare providers are advised to maintain clear and comprehensive records that illustrate the timing, scope, and integration of all services provided on a given day. This documentation should explicitly state that multiple codes representing services rendered on the same day are part of the inclusive initial care provided during admission.

Moreover, internal audits and regular consultation with billing compliance teams can assist in monitoring adherence to guidelines. Staying informed through updated CMS guidelines and engaging in continuous education surrounding E/M billing practices will mitigate errors that could result in unintentional unbundling of services.

Detailed Comparison Table of Non-Billable Services

Category	Non-Billable Services	Key Considerations
Initial Inpatient or Observation Care	Outpatient consultation on same day Multiple initial care codes by same specialty ED visit by same physician if admitted	These services are bundled as part of the admission and should not be billed separately.
Discharge Management	Discharge management codes (99238-99239) on same day Separate discharge visits during inpatient care	Discharge care is integrated into the overall admission billing.
Therapeutic and Diagnostic Preparation	Chemotherapy-related services when bundled Pre- and post-diagnostic preparation and recovery services	Specific therapeutic services are generally included with the diagnostic or inpatient care payments.
Observation-Specific Rules	Services rendered less than 8 hours Outpatient services when patient remains under observation	Use alternative E/M codes where appropriate for short-term evaluation.

Practical Scenarios and Application Examples

Example 1: The Same-Day Admission

Consider a patient who is admitted to the hospital via the emergency department. On the day of admission, the admitting physician performs a comprehensive evaluation that includes history, physical examination, and decision-making regarding immediate treatment. In this scenario, the evaluation is encompassed by the initial admission code. Any additional E/M service performed by the same provider, such as a separate consultation or an outpatient evaluation, is considered part of the bundled services. Attempting to bill separately for that extra service on the same day would be inconsistent with the bundled payment approach.

Example 2: Observation Versus Inpatient Follow-Up

A patient is placed under observation in the hospital for further evaluation. The observation care codes are utilized to capture this service, including necessary assessments and interventions. If the patient’s observation period is brief (less than eight hours), the services are typically billed using alternative evaluation codes related to emergency or outpatient care instead of the inpatient codes. Additionally, if a discharge management code is used when the patient is transitioning from observation to discharge, it cannot be billed on the same day as services included in the observation or initial hospital care billing.

Example 3: Therapeutic Intervention During Hospital Stay

In the instance where therapeutic services, such as chemotherapy, are administered during an inpatient stay, these services are integrated into the overall bundled payment for the hospital admission. Healthcare providers should document these therapeutic services clearly in their charts to support that they are an integral part of the care continuum and not additional services that qualify for separate billing.

Documentation and Compliance Strategies

To adhere to the billing guidelines and avoid the pitfalls of improper unbundling, documentation must be both detailed and meticulous. Here are several strategies healthcare providers should adopt:

Thorough Documentation: Record all activities performed on the day of admission within a single note. Highlight that all services, including initial evaluations, subsequent care, and discharge planning, are components of the overall care provided during that particular encounter.
Use of Appropriate Modifiers: When situations arise that require documentation of additional time or services (such as prolonged services), ensure that the correct modifiers are applied. However, these must never conflict with the rules for inpatient or observation bundled services.
Regular Compliance Audits: Engage with healthcare compliance teams to periodically review billing practices, ensuring that no unbillable services are erroneously submitted as separate claims.
Education and Training: Continuous education on the evolving rules associated with E/M coding, observation care, and hospital admissions is imperative. This knowledge helps prevent common pitfalls and supports correct coding practices.

When discrepancies or uncertainties arise in coding services, it is always advisable for providers to consult updated CMS guidelines and collaborate with billing specialists. Doing so minimizes the risk of claim denials and ensures that all billing practices are compliant with federal and private payer standards.

Further Considerations

Healthcare providers must also consider the evolution of billing standards as healthcare delivery models change. With the ongoing updates to CMS policies and private payer modifications, staying informed is critical. Providers should incorporate continuous professional development in their practices and utilize updated coding resources to align with current regulations.

Additionally, billing errors may result in payment delays or denials which can negatively impact revenue cycles. By understanding and implementing these non-billable service guidelines, providers can ensure that their claims are more likely to be processed efficiently and accurately.

References

Observation E/M Codes - CMS Guidelines
E/M FAQs - NGS Medicare
Medicare Guidelines on Inpatient Services - Novitas
Hospital Billing Guidelines - FACS
CMS Billing Documentation
E/M Coding Overview - AAPC
Inpatient and Observation Coding - AAPC Blog
CMS E/M Services Guide
Mastering E/M Codes - ForeseeMed
Observation Care Payments FAQ - ACEP