Knowledge Base Article

The holiday season is almost upon us. Since it is the time of year for spending time with family and revisiting old friends, I thought it would be a good time for this newsletter to revisit an old “friend,” the three-day payment window. This issue especially deserves a revisit since it is also being revisited by some of our favorite Medicare review entities. In August 2019, the Office of Inspector General (OIG) published a new Work Plan item, “Review of the Medicare DRG Window Policy”, and the Recovery Auditors have long had an automated issue for “Outpatient Service Overlapping or During an Inpatient Stay.”

The description from the OIG Work Plan item provides a good summary of the 3-day payment window – “Outpatient services directly related to an inpatient admission are considered part of the inpatient payment and are not separately payable by Medicare. The diagnosis-related group (DRG) window policy defines when CMS considers outpatient services to be an extension of inpatient admissions, and generally includes services that are (1) provided within the 3 days immediately preceding an inpatient admission to an acute-care hospital, (2) diagnostic services or admission-related nondiagnostic services, and (3) provided by the admitting hospital or by an entity wholly owned or operated by the admitting hospital.”

The DRG window policy can be found in Section 40.3 of the Medicare Claims Processing Manual (CPM), Chapter 3. However, reading through this section can be somewhat confusing to me, especially with all the directions of “before this date” and “after this date.” Let’s simplify as to where the rules stand now.

Entities to Which the Payment Window Applies

The payment window policy applies to both IPPS hospitals, and hospitals and units excluded from IPPS which are psychiatric hospitals and units, inpatient rehabilitation facilities (IRF) and units, long-term care hospitals (LTCH), children’s hospitals, and cancer hospitals. For these hospitals and units excluded from IPPS, this provision applies only to services furnished within one day prior to and including the date of the beneficiary's admission.

The window policy applies to services provided by the admitting hospital or by an entity wholly owned or operated by the admitting hospital. According to the CPM referenced above, “An entity is considered to be "wholly owned or operated" by the hospital if the hospital is the sole owner or operator. A hospital need not exercise administrative control over a facility in order to operate it. A hospital is considered the sole operator of the facility if the hospital has exclusive responsibility for implementing facility policies (i.e., conducting or overseeing the facility's routine operations), regardless of whether it also has the authority to make the policies.”

The provision applies to the technical portion of services rendered at a hospital-owned or hospital-operated physician clinic or practice. The provision does not apply when the admitting hospital is a critical access hospitals (CAH) but services rendered to a beneficiary at a CAH that is wholly owned or operated by a non-CAH hospital, during the payment window, are subject to the 3-day (or 1-day) payment window policy. The 3-day (or 1-day) payment window policy does not apply to outpatient services that are included in the rural health clinic (RHC) or Federally qualified health center (FQHC) all-inclusive rate.

Services Affected by the Payment Window for IPPS Hospitals

I like to break this down into three different categories – services on the day of admission, diagnostic services, and related, nondiagnostic services:

• All outpatient services (both diagnostic and nondiagnostic services) provided on the day of an inpatient admission must be billed with the inpatient stay.
• Diagnostic services (including clinical diagnostic laboratory tests) provided within 3 days prior to admission are deemed to be inpatient services and included in the inpatient payment, unless there is no Part A coverage.
• Diagnostic services are defined by the presence on the bill of specific revenue and/or CPT codes as listed in this section of the CPM.
• Nondiagnostic outpatient services that are related to a beneficiary’s hospital admission and that are provided to the patient during the 3 days immediately preceding are deemed to be inpatient services and are included in the inpatient payment.
• Nondiagnostic services are considered related unless they are clinically distinct or independent from the reason for the beneficiary’s admission.
• Hospitals must attest that nondiagnostic services are unrelated by adding a condition code 51 (definition “51 - Attestation of Unrelated Outpatient Non-diagnostic Services”) to the separately billed outpatient non-diagnostic services claim.

The 3-day timeframe along with the day of admission bundling requirement means that if a patient is admitted on a Wednesday, outpatient services meeting the above criteria provided by the hospital on Sunday, Monday, Tuesday, or Wednesday are included in the inpatient Part A payment.

Hospitals must include on the inpatient Medicare claim the diagnoses, procedures, and charges for all preadmission outpatient diagnostic services and all preadmission outpatient nondiagnostic services that meet the above requirements. The hospital must convert CPT codes to ICD procedure codes and must only include outpatient diagnostic and admission-related nondiagnostic services that span the period of the payment window. POA (present on admission) indicators are assigned based on conditions the patient has at the time of the inpatient admission order, irrespective of whether or not the patient had the condition at the time of being registered as a hospital outpatient.

The Payment Window provision does not apply to ambulance and maintenance renal dialysis services or to Part A services furnished by skilled nursing facilities, home health agencies, and hospices.

Separately Billable Services

Unrelated nondiagnostic services and services outside the payment window are separately billable to Medicare on an outpatient claim.

• This means outpatient nondiagnostic services provided during the payment window that are unrelated to the admission and are covered by Part B may be separately billed to Part B. Hospitals should use condition code 51 as described above and must maintain documentation in the patient’s medical record to support that the services are unrelated to the inpatient admission.
• Outpatient services furnished to a patient more than 3 days (or 1 day for non-IPPS hospitals/units) preceding the date of admission, are not part of the payment window and must not be bundled on the inpatient bill with other outpatient services that were furnished during the span of the 3-day (or 1-day) payment window, even when all of the outpatient services were furnished during a single, continuous outpatient encounter. Instead, the outpatient services that were furnished prior to the span of the payment window may be separately billed to Part B.

Understanding and correctly applying the Medicare DRG payment window will help hospitals avoid recoupments by Medicare reviewers such as the RACs and the OIG. Hospitals also need to understand when it is acceptable to separately bill for Part B services to prevent inappropriate bundling and loss of separate payments.

One other concern for hospitals is that the OIG continues to encourage expansion of the 3-day time frame in order to capture more admission-related outpatient services into the inpatient admission payment. As noted in their Work Plan, they want to “determine the amounts that Medicare and beneficiaries would have saved in 2018 if the DRG window policy had been updated to include more days and other hospital ownership structures.” Looks like our “old friend” could be becoming less friendly.