Professional vs Facility Billing: What Hospitalists Must Know

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.

“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.”

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, 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.

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.

The Revenue Cycle

The hospital revenue cycle has a lot of cogs in the machine, Arafiles said. “This is just one of the many nuances of our crazy system. I will go out on a limb and say it is not our job as clinicians to know all of those nuances.” The DRG assignment is dependent on how providers can describe the complexity of the patient and severity of the illness, even if it doesn’t impact professional billing, Arafiles added.

Hospitalists don’t want to think about money when providing patient care. “Our job is to provide the best care to our patients. We often utilize resources without thinking about how much they are going to cost, so that we can do what we think is necessary for our patients,” she explained. But accurate diagnosis codes can capture the complexity of the care. “Maybe we don’t take that part seriously enough. As long as I, as the provider, can accurately describe the complexity of my patient, I can justify why I spent all those resources and so many days caring for him or her.”

Charles Locke, MD, executive medical director of care management for LifeBridge Health and assistant professor of medicine at Johns Hopkins University, Baltimore, said hospitalists typically are paid set salaries directly by the hospital, in some cases with productivity bonuses based in part on their billing and posted RVUs (relative value units). RVUs are the cornerstone of Medicare’s reimbursement formula for physician services.

“Another thing to keep in mind, one might think in 2021 that the computer systems would be sophisticated enough to link up professional and facility billing to ensure that bills for each are concordant for services provided on a given day. But it turns out they are not yet well connected,” Locke said.

“These are issues that everybody struggles with. Hospitalists need to know and order the appropriate status, inpatient versus outpatient, and whether and when to order observation services, as this will affect hospital reimbursement and, potentially, patient liability,” he explained.1 If the hospital is denied its facility claim because of improper status, that denial doesn’t necessary extend to a denial for the doctor’s professional fee. “Hospitalists need to know these are often separated. Even though their professional fee is honored, the hospital’s service charges may not be.”

Locke said knowing the history of Medicare might help hospitalists to better appreciate the distinctions. When this federal entitlement was first proposed in the 1960s as a way to help older Americans in poverty obtain needed health care, organized medicine sought to be excluded from the program. “Nonhospital services and doctors’ service fees were not included in the original Medicare proposal,” he said. Medicare Part B was created to provide insurance for doctors’ professional fees, which are still handled separately under Medicare.

Many institutions use clinical documentation for multiple purposes. “There are so many masters for this one document,” Arafiles said. The information is also used for various quality and patient safety metrics and data gathering. “Every code we choose is used in many different ways by the institution. We don’t know where all it goes. But we need to know how to describe how complex the case was, and how much work it entailed. The more we know about how to describe that, the better for the institution.”

Arafiles views the clinical note, first and foremost, as clinical communication, so that one provider can seamlessly pick up where the previous left off. “If I use language in my note that is accurate and specific, it will be useful to all who later need it.” Building on metrics such as expected versus actual 30-day readmission rates, risk-adjusted mortality, and all the ways government agencies report hospital quality, she said, “what we document has lasting impact. That’s where the facility side of billing and coding is ever more important. You can’t just think about your professional billing and RVUs.”

Support From the Hospital

Some hospitalists may think facility billing is not their concern. But consider this: The average support or subsidy paid by U.S. hospitals for a full-time equivalent hospitalist is estimated at $198,750, according to SHM’s 2020 State of Hospital Medicine.2 That support reflects the difference between the cost of employing a hospitalist in a competitive labor environment and what that provider is actually able to generate in billing income, said Hardik Vora, MD, MPH, SFHM, chair of SHM’s practice management committee.

With a lot of medical specialties, the physician’s salary is only or largely supported by professional billing, said Vora, who is medical director for Hospital Medicine and physician advisor for utilization management and CDI at Riverside Health System, Yorktown, Va.

“Hospital medicine is different in that aspect, regardless of employment model. And that’s where the concept of value comes in – how else do you bring value to the hospital that supports you,” said Vora.

Hospitalists often emphasize their contributions to quality improvement, patient safety, and hospital governance committees – all the ways they contribute to the health of the institution – as justification for their support from the hospital. But beneath all of that is the income the hospital generates from facility billing and from the hospitalist’s contributions to complete, accurate, and timely documentation that can support the hospital’s bills.

Typically, this hospital support to supplement hospitalist billing income is not directly tied to the income generated by facility billing or to the hospitalist’s contribution to its completeness. But between growing technological sophistication and greater belt-tightening, that link may get closer over time.

Other Players

Because of the importance of complete and accurate billing to the hospital’s financial well-being, specialized supportive services have evolved, from traditional utilization review or utilization management to CDI services and the role of physician advisors – experienced doctors who know well how these processes work and are able to teach providers about regulatory compliance and medical necessity.

“One of my jobs as the medical director for our hospital’s CDI program is to educate residents, fellows, and newly onboarded providers to be descriptive enough in their charting to capture the complexity of the patient’s condition,” Arafiles said. Physician advisors and CDI programs can involve clinical providers in bringing value to the institution through their documentation. They serve as the intermediaries between the coders and the clinicians.

The CDI specialist’s job description focuses on diagnosis capture and associated reimbursement. But integrity broadly defined goes to the integrity of the medical record and its contribution to quality and patient safety as well as providing a medical record that is defensible to audits, physician revenue cycle expert Glenn Krauss noted in a recent post at ICD10 Monitor.3

Vora sees his role as physician advisor to be the link between the hospital’s executive team and the hospital’s medical providers. “Providers need help in understanding a complex set of ever-changing rules of facility billing and the frequently competing priorities between facility and professional billing. I tell my providers: The longer the patient stays in the hospital, you may be generating more RVUs, but our facility may be losing money.”

Hospital administrators are acutely aware of facility billing, but they don’t necessarily understand the nuances of professional billing, said Jay Weatherly, MS, the cofounder of Hospitalist Billing, a company that specializes in comprehensive billing and collection solutions for hospitalist groups that are employed directly by their hospitals. But he sees an essential symbiotic relationship between hospital administrators and clinicians.

“We rely on hospitalists’ record keeping to do our job. We rely on them to get it right,” he said. “We want to encourage doctors to cooperate with the process. Billing should never be a physician’s top priority, but it is important, nonetheless.”

HBI is relentless in pursuit of the information needed for its coding and billing, but does so gently, in a way not to put off doctors, Mr. Weatherly said. “There is an art and a science associated with securing the needed information. We have great respect for the doctors we work with, yet we’re all spokes in a bigger wheel, and we need to bill effectively in order to keep the wheel moving.”

What Can Hospitalists Do?

Sources for this article say one of the best places for hospitalists to start improving their understanding of these distinctions is to ask the coders in their institution for advice on how to make the process run more smoothly.

“If you have a CDI team, they are there to help. Reach out to them,” Arafiles said. Generally, medical schools and residency programs fail to convey the complexities of contemporary hospital economics to future doctors.

Hospitalists have become indispensable, Vora said. But salaries for hospitalists are going up while hospital reimbursement is going down, and hospitalists are not seeing more patients. “At some point we will no longer be able to say financial support for hospital medicine groups is just a cost of doing business for the hospital. COVID tested us – and demonstrated how much hospital executives value us as part of the team. Our organization absolutely stood behind its physicians despite financially challenging times. Now we need to do what we can to support the organization,” he added.

Hospitalists can also continue to educate themselves on good documentation and coding practices, by finding programs like SHM’s Utilization Management and Clinical Documentation for Hospitalists.

“As we see a significant shift to value-based payment, with its focus on value, efficiency, quality – the best care at the lowest possible price – hospital medicine as a specialty will be best positioned to help with that. If the hospital does well, we do well. We should be building relationships with the hospital’s leadership team,” Vora said. “You always want to contribute to that partnership to the highest level possible. When they look at us, they should see their most reliable partner.”


1. Locke C, Hu E. Medicare’s two-midnight rule: What hospitalists must know. The Hospitalist. 2019 Feb 22.

2. Beresford L. Hospital medicine in a worldwide pandemic: State of Hospital Medicine 2020. The Hospitalist. 2020 Sep 20.

3. Krauss G. Clinical documentation integrity: rebranding and repurposing. ICD10 Monitor. March 16, 2020 Mar 16.

This article originally appeared on The Hospitalist, an official publication of the Society of Hospital Medicine.

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