Clearing the Confusion Around the Three-Day Rule

The three-day payment window rule has remained unchanged since its implementation in 1998, yet much confusion still surrounds the issue.

In the most recent CMS Hospital Open Door Forum, the issue was the hot topic, with a number of callers asking for further clarification regarding the rule and the subsequent RAC denials that have come as a result.

Kimberly Anderwood Hoy, JD, CPC, director of Medicare and compliance for HCPro, Inc., has been speaking and teaching about this rule for a number of years and shed some light on this complicated issue. The three-day rule states that all diagnostic services provided three calendar days before the calendar day on which the patient is admitted are bundled and paid as part of the inpatient stay. However, the rule states that nondiagnostic preadmission services are only bundled if they are related to the inpatient stay.

Hoy says "related" is a key concept for providers to understand. CMS defines "related" to the admission as an exact match of all digits between the ICD-9 principal diagnosis code assigned for both the outpatient preadmission services and the inpatient stay. Thus, whenever Part A (inpatient) covers an admission, the hospital may bill nondiagnostic preadmission services to Part B as outpatient services as long as they are not related to the admission (exact match of diagnosis codes), according to the Medicare Claims Processing Manual.

Hoy says some providers have found it difficult to segregate inpatient and outpatient services that happen during the same encounter because they typically only register the patient once for each encounter.

"The hospital does not assign separate diagnosis codes for the inpatient and outpatient portions of the encounter, but rather codes the entire record as one encounter," she says. "This results in the outpatient services ending up on the inpatient claim because the facility can not determine which services should be billed separately."

Hoy provides an example: Say a patient comes in for a therapeutic cardiac catheterization procedure on an outpatient basis, and as a result of the procedure the patient is admitted to the hospital with a complication, such as an infection. Clinically, the catheterization is related to the inpatient admission for the complication.

However, the principal diagnosis code for the inpatient admission would be related to the complication and not the procedure, whereas the principal diagnosis code for the procedure would be the clinical reason for the procedure. In this case, the catheterization should be billed separately as an outpatient services, Hoy says.

Yet, if the hospital admitted the patient after the surgery and maintained one clinical record and registration for the patient, they have no way to identify this, she adds.

"The RACs are looking for these scenarios where the outpatient surgery was done for a reason unrelated to the inpatient admission, but the hospital nonetheless put everything on the inpatient claim," she says. "What they should have received was the medical DRG for the complication, but what they may have gotten was the DRG for cardiac surgery or for a procedure unrelated to principle diagnosis, much higher paying DRGs."

MACs creating additional obstacles

In addition to the complicated nature of separating out the individual claims, providers may have received inaccurate information from their Medicare Administrative Contractor (MAC). During the CMS Hospital Open Door Forum in January, a caller explained that a contractor advised that if services are clinically related that they must be combined on the inpatient claim regardless of whether the diagnoses match, which simply isn't true.

"Providers read the information and try to apply it correctly, but are then told by the MAC that they are wrong and that they must be grouped together," says Hoy. "The rule states that there has to be an exact match of the diagnosis code on the inpatient and outpatient claims and CMS confirmed that on the recent Open Door Forums."

Despite all the perplexity of the three-day payment rule window, there are a number of options for providers to avoid problems.

If a provider is receiving inaccurate information from a contractor, he or she can work with the Regional Office to get the contractor to apply the rule correctly to the claims. If the problem is an internal one, read the rule carefully in the Medicare Claims Processing Manual and make sure that the practice's policies are in compliance with the rule and that even though the practice may think it is being conservative by lumping everything into the inpatient claim, it's not how CMS looks at it, according to Hoy.