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Hospitals Face Three-Day Payment Window Changes

Michael Iarrobino and James Carroll, June 28, 2010

Hospitals clamoring for guidance from CMS about the three-day payment window must now grapple with legislative changes to the requirements that carry significant revenue implications and could potentially affect the national recovery audit contractor (RAC) program.

President Obama on June 25 signed the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 , which contains a section to clarify the three-day payment window, or three-day rule. The three-day rule previously stipulated that hospitals must bill as part of an inpatient stay all diagnostic services provided within three days of admission, as well as all nondiagnostic services related to the inpatient admission. CMS had previously defined "related" to be an exact diagnosis code match between the inpatient admission and the outpatient therapeutic services. Hospitals had struggled to correctly apply the rule in their billing operations.

"This has been a grey area for a very long time and has caused confusion for both the MACs/FIs and providers," says Karen Sagan, revenue audit coordinator at Bellin Health in Green Bay, WI. Confusion had recently come to the fore on several of CMS' Hospital and Hospital Quality Open Door Forum conference calls, during which the provider community posed numerous questions regarding the rule. "Clearly over the last couple of months it has come to light that providers were all doing something different, due to the lack of clarification."

The statutory change adopts a new definition for "other services related to the admission" that must also be billed as part of the inpatient stay. Under the new definition, effective for services provided on or after June 25, hospitals should bill as part of the inpatient stay all nondiagnostic services provided on the day of admission as well as those in the three days prior to admission, unless they can demonstrate that the services are unrelated to the admission. CMS must now issue instructions specifying how hospitals can meet this requirement. Facilities should continue to bundle all diagnostic services provided during the three-day window prior to the inpatient stay.


CMS implementation, guidance necessary
CMS announced that it will soon issue guidance to hospitals on how to bill for nondiagnostic services provided during the three-day window prior to an inpatient stay. Much will depend on how CMS will specify hospitals can demonstrate that services are unrelated to the inpatient admission, and therefore separately billable.

"Currently, we have a rule that would do this (i.e., based on the diagnosis codes assigned) but it is unclear whether CMS will retain the current rule or adopt a new rule," says Kimberly Anderwood Hoy, JD, CPC, director of Medicare and compliance for HCPro, Inc., in Marblehead, MA.

Hospitals must make difficult decisions until they receive clarification from CMS. According to the CMS release announcing the statutory change:

"Until the instruction is issued, hospitals should include charges for all diagnostic services and all non-diagnostic services that it believes meet the requirements of this provision. If a hospital believes that a non-diagnostic service is truly distinct from and unrelated to the inpatient stay, the hospital may separately bill for the service provided that it has documentation to support that the service is unrelated to the admission, consistent with the new provision. Such separately billed service may be subject to subsequent review."

This puts the onus on hospitals to maintain compliance with a requirement that hasn't yet been fully developed.

Hospitals had complained to CMS that the previous three-day rule was onerous because they did not have the resources to separately code services rendered in the same encounter and compare diagnosis codes to determine related and unrelated services. However, the new rule may require hospitals to have a clinician review all services provided in the three days prior to admission individually, which may in the end be far more time-consuming and resource-intensive, Hoy says.

"Hopefully, CMS either retains the old bright line rule or puts in place a new bright line rule that will not require clinicians to individually review services in order to bill correctly," she says.

Until further clarification from CMS, Hoy advises hospitals to carefully review CMS' June 25 press release to determine how to appropriately bill services rendered three days prior to an inpatient admission.

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