RAC: The Problem with the Three-day Rule

The three-day rule is the subject of a provision in the American Jobs and Closing Tax Loopholes Act, a proposed amendment to the American Workers, State, and Business Relief Act, before the House of Representatives.

This provision not only aims to stop RAC related re-openings and recoupments related to the three-day rule, but also would prevent hospitals from requesting payment for outpatient services they previously bundled in error and are not rebilled at the time of enactment of the provision.

"RACs have identified and targeted claims with certain outpatient services hospitals have billed as part of the inpatient claim (ER services, outpatient surgeries) that may have changed the DRG." says Kimberly Anderwood Hoy, JD, CPC, director of Medicare and compliance for HCPro, Inc. "The proposed provision would not allow RAC reopenings or adjustments related to any outpatient services that were already submitted on Part A claims prior to enactment of the provision."

This also prevents hospitals from rebilling services they bundled in error, Hoy says, significantly prejudicing hospitals who have incorrectly been applying the rule.

The three-day rule has been a provider conundrum for years. In the early 1990s, the OIG began implementing the first corporate integrity agreements in the hospital industry. These agreements are essentially an agreement with the government that a given facility will have a compliance plan in place meeting government standards. One of the first big compliance issues resulting in corporate integrity agreements was the three-day rule, according to Hoy.

"The issues at that time were primarily related to whose services were being bundled and whether hospitals that owned other small hospitals were not bundling services from their smaller hospitals," says Hoy. "But this lead to an overall fear of incorrectly applying the three-day rule, and this overcautious application actually lead to the non-compliance we are seeing targeted today."

The other and more current reason why the three-day rule has become a big issue is that CMS looks at inpatient and outpatient services like there is a big bright dividing line when a doctor writes an inpatient order, even though hospitals look at the services as all part of one encounter, according to Hoy.

"From their [CMS] perspective, the services are all outpatient before the order and all inpatient services after," she says. "But hospitals have been just bundling all of this into one big stay, thus creating the confusion."

For further clarification, providers should read the rule carefully in the Medicare Claims Processing Manual and make sure that their policies are in compliance with CMS. But in light of this proposed amendment, hospitals also need to keep a close eye on any further developments with the rule, particularly if it is passed, since CMS may provide redefinition of what is "related" and "unrelated."