IPPS Proposed Changes Clarify Three-Day Rule

Last month CMS released the inpatient prospective payment system proposed rule for 2012, which contains a vast assortment of inpatient proposals and clarifications for finance and accounting departments, coders and billers, and quality departments, among others. This is the first in a series of three IPPS-related articles covering three of the most significant clarifications. We begin with CMS' three-day payment window rule.

The three-day rule, which was significantly amended in 2010, defines certain preadmission services as inpatient operating costs, meaning they are bundled and billed as part of the inpatient claim and payment is made as part of the applicable DRG payment for the case. While it sounds clear, the rule was widely misunderstood by providers leading to last year's clarifying amendments.

The most recent clarification in the IPPS proposed rule deals with guidance given by CMS in an October 2010 hospital open door forum conference call. During the call, a listener questioned whether different taxpayer identification numbers will have any bearing on whether a physician practice group is wholly owned, and if the three-day payment window applies.

A CMS representative responded that the rule only applies to the technical component services in provider based facilities, but not to freestanding (non-provider based) physician offices wholly owned or operated by a hospital. However this information contradicted prior guidance given in a 1998 clarification of the payment window published in the Federal Register.

In the January hospital open door forum, CMS seemed to have corrected this apparent error, indicating the payment window applied generally to technical services at any physician office wholly owned or operated by a hospital.

CMS further clarified its interpretation in the IPPS proposed rule for 2012, stating that the Federal Register containsthe correct interpretation of the statute, specifically applying the rule to non-provider-based hospital-owned practices. The IPPS proposed rule states:

In response to ongoing requests to clarify the applicability of the payment window policy to preadmission non-diagnostic services provided in hospital-owned or hospital-operated physicians' offices or clinics, we are clarifying in this proposed rule that the three-day (or, where applicable, one-day) payment window policy applies to both preadmission diagnostic and non-diagnostic services furnished to a patient at physicians' practices that are wholly-owned or wholly-operated by the admitting hospital.

Though this policy update helps to clarify this aspect of the rule, there are a still a number of issues that need to be addressed, according to Kimberly Anderwood Hoy, JD, CPC,director of Medicare and compliance for HCPro, Inc.

"CMS has not yet addressed the issue of how to separate the charges for the technical portion from the professional [portion] for inclusion on the inpatient claim," she says. "In the interim, I would suggest that providers download the physician fee schedule Excel file and figure a percentage based on the difference between the facility and non-facility rate for the code."

Hoy continues, "Additionally CMS did not indicate how practices should bill for the professional only portion of E/M services, which are not subject to the professional component modifier -26, to ensure they receive proper payment for only the professional portion of the service." 

In provider-based locations, this payment adjustment is made based on the location of the service in a hospital outpatient department, but these services would not accurately be reported with that site of service because they occur in a freestanding physician office.

In August, CMS plans to release further clarifying instructions in the physician fee schedule proposed rule. Until then—while providers are waiting for this guidance—Hoy suggests keeping an eye on the issue.

"I would recommend that these cases are tracked internally until the physician fee schedule rule is issued to ensure that hospitals have the information for billing or rebilling the physician portion, as appropriate, under the new guidance in that rule."

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