What Are We to Do About Condition Code 44?

Sept. 10, 2004 was a day of mixed blessings in the case management world. On that day, the Centers for Medicare & Medicaid Services (CMS) released MLN Matters SE 0622, titled Clarification of Medicare Payment Policy When Inpatient Admission is Determined to be Not Medically Necessary, Including the Use of Condition Code 44: Inpatient Admission changed to Outpatient.

With this, finally, after years of write-offs, CMS gave hospitals a way to correct the status of a patient who was incorrectly admitted as an inpatient and still get paid for the services provided to the patient. But it was not met with solely celebration, since CMS set strict criteria for these changes. That included requiring that any change from inpatient to outpatient include review by a physician member of the utilization review (UR) committee, even when the physician who ordered inpatient admission decided themselves to change the status to outpatient.

This created the need for ready access to a UR committee physician at all times, including weekends, when the most incorrect status determinations seemed to happen. It also required written notification to the patient, the hospital (how exactly do we notify a building?), and the physician. For many hospitals, the logistics limited the use of Condition Code 44, with resulting loss of revenue.

In 2013, after several administrative law judges awarded Part B payment as a consolation prize to hospitals that had appealed denials of their Part A admissions, CMS issued CMS-1455-R, which allowed hospitals to rebill denied inpatient Part A admissions to Part B and get paid for all eligible services instead of a limited number of services (which were previously allowed). The next change occurred soon thereafter as part of the 2014 Inpatient Prospective Payment System (IPPS) Final Rule. Here CMS allowed hospitals to review inpatient admissions after discharge, admit that inpatient admission was inappropriate, self-deny by filing a provider liable claim, and then rebill for all applicable services. Since this self-denial-and-rebill process did change the patient’s liability from Part A to Part B, CMS required that it follow the standard utilization review process, with review by a UR physician and written notification to all involved parties (with another letter addressed to a building).

Then, out of the blue, in sub-regulatory guidance issued Jan. 30, 2014 as part of the two-midnight rule education outreach, CMS stated that “if the physician or other practitioner responsible for countersigning an initial order or verbal order does not agree that inpatient admission was appropriate or valid (including an unauthorized verbal order), he or she should not countersign the order and the beneficiary is not considered to be an inpatient. The hospital stay may be billed to Part B as a hospital outpatient encounter.” This came along with the requirement that all admission orders be authenticated prior to discharge as a condition of payment.

Putting this all together, if a patient is admitted as inpatient by a written order from a practitioner with admitting privileges and it is determined that the inpatient admission was improper, the Condition Code 44 process is required to convert that patient to outpatient. But if that same practitioner gave the inpatient admission order as a verbal order and it is determined that the inpatient admission is improper, the practitioner can simply not sign the order and now the patient is an outpatient, with no UR review or notification. A patient who was formally admitted as inpatient, given a copy of the Important Message from Medicare informing them of their appeal rights, and whose financial liability was inpatient Part A now can become an outpatient, with financial liability shifting to outpatient Part B.

CMS has stated that it wants patients to be fully informed about their financial obligations, yet this new policy allows an inpatient to become an outpatient without their knowledge. And unless they receive more than 24 hours of observation services, in which case the Medicare Outpatient Observation Notice (MOON) would be required, that patient would never know their stay was an outpatient stay until they received a bill.

This policy does open wide a potential Condition Code 44 work-around for hospitals. If all admission orders are entered as verbal orders, the UR staff then can review the admissions and either clear the order for authentication, making it a valid inpatient admission, or block the order from authentication and request an order for observation, reverting the patient to outpatient and starting the billing for observation services and counting hours for the MOON delivery. The admitting doctor can enter all the orders directly into the computer, but the admission order must be given verbally to a nurse or another provider standing nearby who would then enter that single order as a verbal order. With this policy, there is no need to ever use Condition Code 44. The UR physician does not need to be bothered and there is no need to worry about the patient being fully informed about the change in their status since, according to CMS, they were never an inpatient in the first place.

Of course, I find this policy ridiculous. If there is an admission order of any type effectuated and the patient is formally admitted and starts receiving care as an inpatient, the lack of authentication on that order cannot possibly make that admission disappear. It violates patients’ rights, specifically taking away their discharge appeal rights without any notification, and it violates their right to be aware of their status and the financial ramifications.

One day CMS will realize this and reverse its stance, perhaps quoting Gilda Radner’s Emily Litella, saying “never mind.”


Ronald Hirsch, MD, FACP, CHCQM, CHRI

Ronald Hirsch, MD, is vice president of the Regulations and Education Group at R1 Physician Advisory Services. 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 Advisory Board of the American College of Physician Advisors, a member of the American Case Management Association, and a Fellow of the American College of Physicians. Dr. Hirsch is a member of the RACmonitor editorial board and is regular panelist on Monitor Mondays. The opinions expressed are those of the author and do not necessarily reflect the views, policies, or opinions of R1 RCM, Inc. or R1 Physician Advisory Services (R1 PAS).

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