What’s the difference between inpatient and outpatient care?

Let’s start with the basics. The difference between inpatient and outpatient care often boils down to one simple question:

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“Did the patient stay overnight in a hospital bed?”

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If the answer is yes, they’re considered an inpatient. 

If not, they’re an outpatient–even if the visit lasted for hours and included complex procedures. 

This difference might sound straightforward, but when it comes to billing, the story gets a bit more complicated…as it always does in billing!

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Inpatient Billing: Details Upon Details

Inpatient billing is often associated with the UB-04 form, also known as an institutional claim. This form covers all patient services a patient receives during their hospital stay, from meals to MRIs. 

In paper-form, it looks something like this:

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There are a few things that make inpatient billing unique:

DRG and Groupings

• Inpatient claims rely on Diagnosis-Related Groups (DRGs). Think of DRGs as buckets that categorize hospital stays based on a patient’s diagnosis and treatment. They determine how much the hospital gets paid for the entire patient’s stay, regardless of how long the patient was hospitalized or how many services they received.
• For example, a patient admitted for pneumonia might fall under a specific DRG. Whether they stay for three or five days, the reimbursement remains the same. This system incentivizes hospitals to provide care efficiently, but it also means coding errors can lead to underpayment–or worse, claim denial.

Global Charges

• Inpatient billing bundles services together. Instead of billing for individual lab tests or imaging studies, these are grouped into one comprehensive charge. It’s like buying a Mcdonald’s combo meal instead of fries, burger, and drink a la carte. Bundling helps simplest things, but it also demands careful attention and documentation to ensure nothing is forgotten.

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Outpatient Billing: Piecemeal Precision

Outpatient billing on the other hand, focuses on individual services. Like our earlier example of ordering fries, burger, and a drink a la carte, every test, treatment, and consultation is accounted for separately for outpatient billing. And instead of a UB-04 form, outpatient claims use the CMS-1500 form.

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The form looks very similar to the UB-04 form, but there are also several key characteristics to note:

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CPT Codes

• While inpatient billing uses DRGs, outpatient billing involves Current Procedural Terminology, otherwise known as CPT codes. Each service, from a routine blood draw to a complex MRI, gets its own unique CPT code.
• For example, let’s say a patient comes in for a knee arthroscopy. That’s CPT code 29881. The patient will probably need physical therapy as well, which is another code. 
• This itemized approach makes outpatient billing highly specific (and very prone to errors).

Fee-for-Service Payments

• Unlike bundled payments in inpatient care, outpatient billing typically follows a fee-for-service model. This means providers are reimbursed for each service individually, which makes precise coding and documentation essential.

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Overlaps: Ambulatory Surgery and Observation Stays

As with all billing, things do and can get murky. Some services blur the line between inpatient and outpatient care, creating unique and complex billing challenges:

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• Ambulatory Surgery Centers
  • Otherwise known as ASCs, Ambulatory Surgery Centers often qualify as outpatient even if they require significant recovery time. However, billing for ASCs combine both inpatient and outpatient workflows – meaning, both facility and professional fees come into play.

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• Observation Stays
  • Patients kept for observation are not considered inpatients, even if they stay overnight. They could stay for issues such as chest pain, and will require monitoring. These cases fall under outpatient billing rules, which can be confusing for both coders and claims managers.

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Why It Matters: Financial Impact

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The billing differences between inpatient and outpatient care can significantly affect reimbursement rates. An incorrectly coded inpatient stay might be reimbursed at outpatient rates, which can leave thousands of dollars on the table. Likewise, misclassifying an outpatient service as inpatient can trigger audits and repayment demands.

For healthcare providers, this isn’t just about numbers. Revenue cycle efficiency affects everything from operational budgets to patient satisfaction. With ENTER's specialized RCM platform, these worries wouldn’t even exist.

After all, no one likes unexpected bills.

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Avoiding Mistakes: Pro-Tips for Claims Managers

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Mastering inpatient and outpatient billing comes down to three key things:

• Strong documentation practices
  1. Be sure to flag high-risk areas while maintaining a high level of focus on auditing observation stays, same-day surgeries, and other services prone to classification errors.
• Clear communication between departments
  1. Collaborating between clinical and billing teams will help ensure documentation can ease and support coding decisions.
• Regular staff training on updates and changes
  1. Staying updated on codes should become routine. Coding rules constantly change, and ensuring that you schedule time for regular training and refreshers will put you ahead of the game and resolve potential issues before they arise.
• Befriend Technology
  • Tools like billing software and coding audits can catch errors before claims head out the door. ENTER’s ClaimAI can handle that–and so much more.

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Caring for the Patient’s Health (and Finances)

While billing may seem to be part of our day to day tasks in the world of healthcare claims, it isn’t always about revenue. It’s about the patient, too. It’s part of the practice’s duty to ensure that patients aren’t caught in the crossfire of denied claims and appeals. When claims are accurate, providers get paid and patients avoid confusing (and sometimes outrageous) bills.

At the end of the day, if you’re billing for an inpatient stay or an outpatient procedure, always remember that clarity is your best ally. In the maze of healthcare billing, the right path isn’t always the shortest…but it’s always the most rewarding to all parties involved.

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