Inpatient and Outpatient Coding Call for Distinct Codes and Guidelines

Medicare claims payment hinges on knowing the differences between settings.

Inpatient and outpatient coding, although similar in theory, are very different. Services performed in either setting are reported using different code sets and guidelines. Services are paid differently, as well. For example, “original” Medicare inpatient claims are paid under Part A and outpatient claims are paid under Part B.

Note: Medicare Advantage, or Part C, covers both Parts A and B, and sometimes D (drugs).

Inpatient Facility Setting

Inpatient facilities are acute and long-term care hospitals, skilled nursing facilities, hospices, and home health services. Inpatient accounts are reported using ICD-10-CM and ICD-10-PCS codes, resulting in payment based on Medicare Severity-Diagnosis Related Groups (MS-DRGs).

In the facility setting, coders must determine the principle diagnosis for the admission, as well as present on admission (POA) indicators on all diagnoses.

Principle diagnosis is the condition after study that prompted the admission to the hospital. The physician must link the presenting symptoms necessitating the admission to the final diagnosis. You cannot infer a cause-and-effect relationship. When the same diagnosis code applies to two or more conditions during the same encounter (i.e., acute and chronic conditions classified with the same diagnosis code), the POA assignment depends on whether all conditions represented by the single diagnosis code were POA.

POA is defined as the conditions present at the time the order for the inpatient admission occurs. The POA indicator differentiates conditions present at the time of admission from those conditions that develop during the inpatient stay. Providers are not required to identify or document a condition within a given period for it to be classified as POA. In some clinical situations, it may not be possible for the provider to make a definitive diagnosis at the time of admission; likewise, a patient may not recognize or report a condition immediately.

Do not code signs and symptoms that are an integral part of the definitive diagnosis. Diagnoses that are listed as “probable,” “suspected,” “likely,” “questionable,” and other similar terms, may be coded when documented as existing at the time of discharge and no definitive diagnosis has been established. The diagnostic workup, arrangement for further workup or observation, etc., must closely correspond with the established diagnosis. Do not code uncertain diagnoses not documented at the time of discharge (i.e., on the discharge summary) because they may have been ruled out during the stay. “Appears to be” is considered an uncertain diagnosis; whereas, “evidence of” is not considered uncertain.

Principle and Secondary Diagnoses

In the inpatient setting, principle and secondary diagnoses and procedures affect the MS-DRG and, ultimately, reimbursement.

Example: The reason for admission is hip pain and the patient is diagnosed with a hip fracture. The principle diagnosis is hip fracture. The principle procedure is performed for definitive treatment rather than diagnostic or exploratory purposes, and it is related to the principle diagnosis. The principle procedure is hip fracture repair. The appropriate DRG is 480 Hip & Femur Procedures Except Major Joint with MCC (major complication or co-morbidity). The estimated or expected reimbursement for this DRG is $16,753.74 (see Figures A, B, C).


If a different diagnosis, such as the patient’s urinary tract infection, is chosen as the principle diagnosis to the hip fracture repair, the result is DRG 981 Extensive O.R. Procedure Unrelated to the Principle Diagnosis with MCC. The estimated or expected reimbursement for this DRG is $27,410.73 (see Figures D, E, F). This is inaccurate, and would cause a significant overpayment that would need to be refunded.

Outpatient Facility Setting

In the outpatient setting, ICD-10-CM and CPT®/HCPCS Level II codes are used to report health services and supplies. Medicare Part B services are observation hospital care, emergency department services, lab tests, X-rays, outpatient surgeries, and doctors’ office visits. Outpatient coders cannot code “probable,” “suspected,” “likely,” or “rule out” conditions. Physicians tend to use this verbiage, even though the conditions cannot be coded unless definitively diagnosed.

It’s important to review the official guidelines to determine whether encounter codes (e.g., encounter for palliative care) are appropriate to use as principle (first-listed only), secondary (must have another code listed as the principle), or either designation.

Example: ICD-10-CM Z51.11 Encounter for antineoplastic chemotherapy is a first-listed or principle-only diagnosis code. It is followed by the code for the malignant neoplasm treated. If the patient receives both radiation therapy and chemotherapy during the same session, Z51.0 Encounter for antineoplastic radiation therapy and Z51.11 are sequenced as the principle and secondary diagnoses, in either order, and then the malignancy treated.

Regardless of setting, it’s important for documentation to be clear and complete for accurate coding. For times when clarification is needed, a physician query may be in order.

Querying Physicians

There are several different styles of queries: verbal, open-ended, multiple choice, yes/no, etc. No matter which type you choose, the query must not lead the physician to code in any way other than what is appropriate. Queries should include the patient’s name, account number, date of admission and discharge, and include pertinent information from the clinical record to convey clearly to the physician why additional clinical clarification is needed. It’s important to provide an option for “other” or “undetermined.”

Example of a multiple-choice query:

A patient is admitted for a right hip fracture. The history and physical notes the patient has a history of chronic congestive heart failure. A recent echocardiogram showed left ventricular ejection fraction of 25 percent. The patient’s home medications include metoprolol XL, Lisinopril, and Lasix.

Leading: Please document if you agree the patient has chronic diastolic heart failure.

Non-leading: For coding specificity and accurate reflection of severity of illness, please clarify if the chronic congestive heart failure can be further specified as:

Chronic diastolic heart failure

Chronic systolic heart failure

Chronic systolic and diastolic heart failure

Unable to determine

Other, please specify ______________________

A good tip is to query when a diagnosis has an impact on the DRG such as a complication or co-morbidity (CC) or MCC. Both play an important role in hospital reimbursement, as they help to reflect the severity of the patient’s illness, risk of mortality, and length of stay.


Coding Clinic, May-June 1984, pages 9-10

ICD-10-CM Official Guidelines for Coding and Reporting

Coding Clinic 3rd quarter 2005, page 22

Coding Clinic, 3rd quarter 2009, page 7:

Coding Clinic, 3rd quarter 2000

Certified Inpatient Coder CIC

Kimberly Farley

Kimberly Farley

Kimberly Farley, CIC, COC, CPC, CHONC, AAPC Fellow, is an inpatient coder for Memorial Health System in Marietta, Ohio. She has been in healthcare for 20 years. She served as member development officer in 2011 and 2012 for the Parkersburg, W.Va., local chapter and has presented at chapter meetings.
Kimberly Farley

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