Patient Status Versus Patient Class Distinction in Hospital Billing

By Juliet Ugart Hopkins, MD, ACPA-C

Hospital billing revolves around a universal category known as patient status, with only two options: Inpatient and Outpatient. This distinction isn’t just about payment—it directly ties into quality reporting and metrics, such as hospital readmissions, which only involve patients classified as Inpatient. While some find this approach flawed, it underscores the need for precise status identification.

Observation services sound like a vague term but they are, in fact, well-defined by the Centers for Medicare and Medicaid Services (CMS) as a specific order for care—just like an order for "Morphine 1 mg IV Q4 PRN severe pain."  For billing purposes, Observation services are reimbursed only on Outpatient claims, starting from the time the order is placed, unless stated otherwise in the payor contract with the hospital. This means any services rendered prior to placement of the Observation services order won’t be reimbursed, emphasizing the importance of proper documentation and timely order entry.

In contrast, patient class refers to location and/or service categories within electronic health record systems. Patient classes like "Emergency," "Hospice," or "Extended Recovery" are customizable to each hospital's needs but are unrelated to billing tied to patient status. Here’s where confusion arises: While class may remain constant, status can shift depending on the condition and care provided to the hospitalized patient.

Take the example of "Extended Recovery." This patient class might apply to patients coming to the hospital for a scheduled surgery who are expected to require overnight monitoring during a routine recovery period. Since patient status is Outpatient for an Outpatient surgery, it would be easy to equate "Extended Recovery" with Outpatient.  However, if the patient develops even minor recovery complications, an Observation services order should be placed.  This addition of an Observation services order might not be considered because the patient is already "in Extended Recovery" and indeed, their extended recovery is being monitored.  Similarly, a patient expected to be discharged on the first post-operative day might be placed into Extended Recovery class when in reality, Inpatient status is appropriate due to the Medicare Inpatient-Only list or payor prior-authorization.  In those instances, it does not matter if the patient will only be hospitalized for a single overnight.  But, if the mentality of hospital staff includes Extended Recovery = patient only staying overnight = Outpatient, then you will miss billing an Inpatient claim.  

Failing to recognize these nuances can result in incorrect claims, missed reimbursements, and potential compliance issues. Hospitals must ensure staff understands these distinctions between patient class and patient status to align billing with actual patient care and regulatory requirements, avoiding costly errors in the process.

Clear communication and vigilance are essential in navigating these complexities for optimal patient care and financial outcomes.