ANSWER:

The use of Condition Code 44 pertains to the entire patient encounter, the patient's status, and the hospital bill type submitted. Medicare does not recognize a separate patient status called "observation;" all hospital patients are either inpatients (if they are admitted as inpatients on the order of a physician) or outpatients (registered by the hospital as outpatients). When Condition Code 44 is appropriately used, the hospital reports on the outpatient bill the services that were ordered and provided to the patient for the entire patient encounter. Reporting of individual HCPCS codes on an outpatient claim must be consistent with all applicable instructions and CMS guidance.

However, in accordance with the general Medicare requirements for services furnished to beneficiaries and billed to Medicare, even in Condition Code 44 situations, the hospital cannot report hours of observation services using HCPCS code G0378 (Hospital observation service, per hour) for the time period during the hospital encounter prior to a physician's order for observation services. Medicare does not permit retroactive orders or the inference of physician orders. Like all hospital outpatient services, observation services must be ordered by a physician and the reporting requirements specific to observation services are discussed in detail in the Medicare Claims Processing Manual (Pub. 100-04), Chapter 4, Section 290.2.2. The clock time begins at the time that observation services are initiated in accordance with a physician's order.

While hospitals may not report observation services under HCPCS code G0378 for the time period during the hospital encounter prior to a physician's order for observation services, in Condition Code 44 situations, as for all other hospital outpatient encounters, hospitals may include charges on the outpatient claim for the costs of all hospital resources utilized in the care of the patient during the entire encounter.