RACMonitor: Deconstructing the Concept of Condition Code 44

Dr. Juliet Ugarte HopkinsMarch 3, 2021

physician at hospital entering clinical documentation

Dear Readers,


As more Medicare beneficiaries enroll in Medicare Advantage plans, the complexity of admission status determinations grows. The rules that must be followed when the status must be changed are often vexing to even the most experienced utilization review staff.


In this article, Dr. Juliet Ugarte Hopkins, the system physician advisor at ProHealth Care in Wisconsin, the president of the American College of Physician Advisors and an R1 RCM client, took a deep dive into Condition Code 44. In her insightful article, she discusses how there's much to it less than meets the eye.  I am honored to call her a colleague and a friend.


        – Ronald Hirsch, MD


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As it turns out, we have all been overthinking the concept of Condition Code 44. Ready for a bit of a history lesson, followed by having your mind blown? Here we go.

On April 1, 2004, in response to a request from the Centers for Medicare & Medicaid Services (CMS), the National Uniform Billing Committee (NUBC) issued a new condition code: Condition Code 44. This claims code was created to identify cases in which a physician ordered a patient to be admitted as an inpatient, but then, upon subsequent review, it was determined that the patient did not meet the hospital’s criteria for inpatient care. The precise definition of Condition Code 44 is, in its entirety:


“Inpatient admission changed to outpatient – For use on outpatient claims only, when the physician ordered inpatient services, but upon internal utilization review performed before the claim was initially submitted, the hospital determined the services did not meet its inpatient criteria.”


Why did CMS ask the NUBC to do this? Possibly because they wanted a way to track the number of times hospitals determined that they were getting the status wrong on the first try. This new condition code could be used to target audits or provide education, as one of CMS’s goals is to protect beneficiary rights. Since status change from inpatient to outpatient takes away the patient’s appeal rights when it comes to discharge, this was felt to be important to track.


Five months after the NUBC issued Condition Code 44, on Sept. 10, 2004, CMS released Transmittal 299, Change Request 3444, with the subject: Use of Condition Code 44, “Inpatient Admission Changed to Outpatient.” This implemented a new Section, 50.3, in Chapter 1 of the Medicare Claims Processing Manual. After this new section caused a great deal of confusion, CMS released MLN Matters SE0622, titled “Clarification of Medicare Payment Policy When Inpatient Admission Is Determined Not To Be Medically Necessary, Including the Use of Condition Code 44: ‘Inpatient Admission Changed to Outpatient.’” This document is precisely where a simple claims code created by the NUBC for use by any payer (file that point away for later) merged into the CMS utilization review requirements of 42 CFR 482.30 – and, essentially, in the minds of most if not all (including this author and even Dr. Ronald Hirsch, who contributed as a fact-checker for this article), where the two became one and the same.


As a reminder, 42 CFR 482.30 contains direction from CMS about hospital review of medical necessity of hospital admissions and continued hospital stay, and it includes the following:

  • A utilization review (UR) committee consisting of two or more practitioners who are doctors of medicine or osteopathy.
  • Determination that an admission or continued stay is not medically necessary is made by one member of the UR committee if the practitioner caring for the patient concurs with the determination, or two members of the UR committee in all other cases.
  • The UR committee consults with the practitioner caring for the patient and allows them to present their views before making the determination.
  • If the UR committee determines that the admission is not medically necessary, the committee gives written notification to the hospital, patient, and practitioner caring for the patient, no later than two days after the determination.

Within the answer to the fifth question at the bottom of MLN Matters SE0622, there are specifics involving hospital billing using Condition Code 44:


“When a hospital submits a 13X or 85X type of bill for services furnished to a beneficiary whose status was changed from inpatient to outpatient, the hospital must report Condition Code 44 in one of Form Locators 24-30, or in the ANSI X12N 837 I in Loop 2300, HI segment, with qualifier BG, on the outpatient claim. Condition Code 44 will be used by CMS and QIOs to track and monitor these occurrences.”

Condition Code 44 is identified as just that – a code added to a claim, not a policy, not a process, and not a procedure. Condition Code 44 is a code added to a claim, period. This, my dear readers, is what escaped all of us.


Now that we recognize the difference between NUBC’s Condition Code 44 and CMS’s policy involving hospital review of the medical necessity of hospital admissions and continued stay (which happens to include using Condition Code 44), let’s consider the situation that has left so many frustrated: Medicare Advantage and commercial plans with policies citing Condition Code 44.


A Medicare Advantage or commercial plan with a policy indicating that use of Condition Code 44 is required in cases in which the patient is found by the hospital not to be appropriate for inpatient admission, with a change to outpatient designation made before discharge, says just that. Condition Code 44 must be used. What is Condition Code 44? A claims code. Is Condition Code 44 a process whereby two practitioners must be involved in the decision to change status, and the patient is notified of the change? It is not. Once again, louder for those in the back: Condition Code 44 is a claims code.


To every hospital that has been following the Medicare Condition Code 44 process associated with 42 CFR 482.30 because policy issued by the Medicare Advantage or commercial plans they are contracted with dictates the use of Condition Code 44 – you’ve been doing it wrong. Using the NUBC Condition Code 44 involves adding the code to a claim of a patient who was changed from inpatient to outpatient before the inpatient claim was submitted, because the hospital determined the services did not meet inpatient criteria. There is no other process to follow, with one exception: If a hospital is not contracted with a patient’s Medicare Advantage plan, then the hospital and plan are obligated to follow Medicare rules. This includes the two-midnight rule, and also, the Condition Code 44 process associated with 42 CFR 482.30.


A commercial payer or contracted Medicare Advantage payer that requires Condition Code 44 simply requires that if a patient is admitted as inpatient and the hospital’s UR process (whatever that may be) determines that inpatient admission was not correct, and the status is changed, this can be accomplished with a new order to outpatient (with or without observation services), with a Condition Code 44 placed on the claim in one of the form locator fields 18 to 28. There is no requirement for a UR committee physician to review the change in status, and there is no requirement to notify the patient in writing. (However, check your state laws, which might include some kind of outpatient or observation notice to the patient, unrelated to CMS rules.)


What happens if a hospital changes a patient from inpatient to outpatient status based not on their own internal review, but in response to a determination by the payer? If the only reason the hospital is changing the status is because they are being told to by the payer, not because the hospital actually doesn’t believe inpatient care is justified, is adding a Condition Code 44 applicable? Let’s go back to the NUBC definition of Condition Code 44:


“For use on outpatient claims only, when the physician ordered inpatient services, but upon internal utilization review performed before the claim was initially submitted, the hospital determined the services did not meet its inpatient criteria.”

If a hospital determined the services did meet its inpatient criteria, but they are making the decision to change to outpatient because they don’t have the time or resources to proceed with a peer-to-peer evaluation or appeal a denial, then Condition Code 44 would not be applicable. However, there would then need to be some kind of documentation within the chart indicating that this is why the change was made – justifying why the Condition Code 44 was not added to the claim – and at this point, there is no standardized or perhaps even compliant way to capture this situation.


As always, knowing the payer, and your contract/policies with said payer, is key. If the payer is traditional Medicare or a non-contracted Medicare Advantage plan, you have to follow the UR process outlined in 42 CFR 482.30 to change an inpatient’s status to outpatient. That process includes placing the Condition Code 44 on the claim. If the payer is not one of those, and they require the use of Condition Code 44, if you change a patient from inpatient to outpatient, simply put the 44 on the claim as a condition code. It’s really that simple.

Author Bio: Juliet B. Ugarte Hopkins, MD, CHCQM-PHYADV, FABQAURP practiced as a pediatric hospitalist and now serves as Physician Advisor for Case Management, Hospital Utilization, and Clinical Documentation for ProHealth Care, Inc. in Wisconsin. She is President of the American College of Physician Advisors.