Managing Custodial Care Billing

What hospitals and clinicians need to know

Custodial care occurs when patients occupy hospital beds despite no longer (or never) needing medically necessary hospital-level care. This situation appears to be increasing as people live longer, often without adequate plans or resources for long-term support.

Discharge delays commonly stem from inability to access or afford non-skilled home care, lack of long-term care placement, caregiver unavailability or other social determinants. While solving these underlying issues is complex, the financial impact is clear – payers generally do not reimburse hospital care that is not medically necessary, and these days/hours can negatively affect metrics such as length of stay and observation hours.

Hospitals should avoid the temptation to simply not bill custodial time. Even when reimbursement is unlikely, all services and bed time should be recorded for accurate accounting and operational management. Staffing and productivity models, for example, both depend on bed days. The correct approach actually depends upon the patient’s status – inpatient versus outpatient.

Inpatient custodial days: calendar-day billing

Inpatient hospital care is billed per calendar day. If a patient occupies a bed at midnight, a bed charge is generated. When inpatient days are not medically necessary, billing should reflect this by applying the appropriate Occurrence Span Code (OSC) to notify the payer that part of the stay is non-covered.

Common OSCs include:

• OSC 74: Used when days are non-covered and the hospital will absorb the cost, indicating a non-covered level of care or leave of absence within an otherwise covered stay.
• OSC 75: Used when the patient would benefit from skilled nursing facility (SNF) care but no SNF bed is available. CMS allows these days to be certified as medically necessary in this circumstance.
• OSC 76: Used when the hospital has issued required notices, including the Important Message from Medicare and the Hospital-Issued Notice of Non-Coverage, and the hospital is permitted to charge the Medicare beneficiary for the non-covered days.

Correct use of span codes matters because Medicare benefit periods include limits (e.g., 90 inpatient days), and properly coded non-covered days may be excluded from those limits when appropriate. Also, when shifting liability to the patient, hospitals must follow strict requirements to protect patient rights and must complete the proper occurrence and value code fields.

Outpatient custodial hours: time-based billing

Outpatient “room and board” is not billed by day the way inpatient care is. Many patients in beds as outpatients are there for:

• Observation services (billed using HCPCS G0378 under revenue code 0762, per hour), or
• Recovery services (often revenue code 0710, billed in time increments)

Purely custodial time does not qualify as observation or recovery. CMS explicitly states in the Medicare Claims Processing Manual, chapter 4, §290.2.2, that observation time does not include time patients remain after treatment is finished for reasons such as waiting for transportation home. If a few hours waiting for a ride cannot be billed as observation, multi-day outpatient custodial stays clearly cannot either.

To capture medically unnecessary outpatient hours for tracking and cost accounting, experts recommend establishing a chargemaster item using the following:

• HCPCS A9270 (non-covered service)
• Revenue code 0760 (treatment room)
• An hourly charge structure

This approach helps hospitals record custodial time that is non-covered while keeping observation billing compliant. Importantly, use of A9270 does not require a physician order. When medically necessary outpatient care ends (for example, observation services conclude), observation hours should stop and any additional custodial time should be recorded separately as non-covered.

Separating these hours can also support shifting financial liability to the patient when appropriate. For Medicare beneficiaries, this can involve an Advance Beneficiary Notice of Non-Coverage (ABN). Unlike inpatient non-coverage processes, the ABN does not provide the same formal appeal rights, and patient liability can begin when the ABN is presented.

Why this matters

Custodial care pressures are expected to worsen, potentially accelerated by reductions in long-term care funding (with Medicaid long-term care spending estimated around $185 billion nationally in 2024). Families with no alternatives may increasingly turn to hospitals, straining acute care capacity. While tracking custodial care will not solve the underlying social and system gaps, consistent billing and documentation practices create the data needed to understand the scope of the problem and support operational and financial decision-making.