Practice Management

Professional versus facility billing: What hospitalists must know

Dramatic impact on hospital margins


Coding and billing for the professional services of physicians and other practitioners in the hospital and for the hospital’s facility costs are separate and distinct processes. But both reflect the totality of care given to patients in the complex, costly, heavily regulated setting of an acute care hospital. And both are essential to the financial well-being of the hospital and its providers, and to their mutual ability to survive current financial uncertainties imposed by the COVID pandemic.

Dr. Aziz Ansari, SHM, cultural humility working group

Dr. Aziz Ansari

“What hospitalists don’t realize is that your professional billing is a completely separate entity [from the facility’s billing],” said Aziz Ansari, DO, SFHM, hospitalist, professor of medicine, and associate chief medical officer for clinical optimization and revenue integrity at Loyola University Medical Center in Maywood, Ill. “Your E/M [Evaluation and Management] coding has a separate set of rules, which are not married at all to facility billing.”

Dr. Ansari presented a session at Converge – the annual conference of SHM – in May 2021, on the hospitalist’s role in “Piloting the Twin Engines of the Mid-Revenue Cycle Ship,” with a focus on how physician documentation can optimize both facility billing and quality of care. Hospitalists generally don’t realize how much impact they actually have on their hospital’s revenue cycle and quality, he said. Thorough documentation, accurately and specifically describing the patient’s severity of illness and complexity, affects both.

“When a utilization management nurse calls you about a case, you need to realize they are your partner in getting it right.” A simple documentation lapse that would change a case from observation to inpatient could cost the hospital $3,000 or more per case, and that can add up quickly, Dr. Ansari said. “We’ve seen what happened with COVID. We realized how fragile the system is, and how razor-thin hospital margins are.”

Distinction between professional and facility billing

Professional billing by hospitalist physicians and advanced practice providers is done for their individual encounters with patients and charged per visit for every day the patient is in the hospital based on the treatments, examinations, and medical decision-making required to care for that patient.

These are spelled out using E/M codes derived from Current Procedural Terminology, which is maintained by the American Medical Association for specifying what the provider did during the encounter. Other parameters of professional billing include complexity of decision-making versus amount of time spent, and a variety of modifiers.

By contrast, facility billing by hospitals is based on the complexity of the patient’s condition and is generally done whether the hospitalization is considered an inpatient hospitalization or an outpatient hospitalization such as an observation stay. Inpatient hospital stays are often paid using diagnosis-related groupings (DRGs), Medicare’s patient classification system for standardizing prospective payment to hospitals and encouraging cost-containment strategies.

DRGs, which represent about half of total hospital reimbursement, are a separate payment mechanism covering all facility charges associated with the inpatient stay from admission to discharge, incorporating the costs of providing hospital care, including but not limited to space, equipment, supplies, tests, and medications. Outpatient hospital stays, by contrast, are paid based on Ambulatory Payment Classifications.

A facility bill is submitted to the payer at the end of the hospital stay, describing the patient’s condition using ICD-10 diagnostic codes. All of the patient’s diagnoses and comorbidities contribute to the assignment of a DRG that best captures the total hospital stay. But to make the issue more complicated, the system is evolving toward models of bundled payment that will eventually phase out traditional DRGs in favor of new systems combining inpatient and outpatient reimbursement into a single bundled episode of care.

Wendy Arafiles, MD, Pediatric Hospitalist at Phoenix Children’s Hospital in Arizona and medical director for its Clinical Documentation Integrity (CDI) team.

Dr. Wendy Arafiles

Professional and facility bills for a single hospitalization may be prepared by different personnel on separate teams following different rules, although they may both be housed in the hospital’s billing department. The differing rules for coding professional services versus facility services can be hard for hospitalists to appreciate, said Wendy Arafiles, MD, a pediatric hospitalist at Phoenix Children’s Hospital and medical director for its clinical documentation integrity (CDI) team. An example is for uncertain diagnoses. There may be a clinical suspicion of a diagnosis, and language such as “likely bacterial pneumonia” might be sufficient for facility coding but not for professional services coding.

Hospitalists, depending on their group’s size, structure, and relationship to the hospital, may be responsible for selecting the CPT codes or other parameters for the insurance claim and bill. Or these may be left to billing specialists. And those specialists could be employed by the hospital or by the hospitalist group or multispecialty medical group, or they could be contracted outside agencies that handle the billing for a fee.


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