New Three-Day Window Policy Takes Effect July 1, 2012

CMS has included in the final rule for the 2012 Medicare Physician Fee Schedule the long awaited new policy relating to the so-called “three-day window”.  Simply stated, the new policy will wrap or bundle a patient’s payments for inpatient stays to include all services provided within three days of admission by a hospital wholly owned or operated physician practice.  The policy directive applies to hospital wholly owned or operated entities providing Part B outpatient services.  Exempted entities include Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs).  The new policy takes effect July 1, 2012. 

In essence, the new policy will now require that any service provided within the three-day window be billed as part of the patient’s in-hospital stay, whether the service is emergency care, x-rays, lab, etc.  Likewise, visits to a hospital employed physician within the three-day window will also be bundled.

This is a major change from the existing three-day payment window, which bundled only the technical portion of outpatient diagnostic services and all non-diagnostic services arising from the hospital admission.

Specifically, the Medicare Physician Fee Schedule 2012 final rule provides that all services provided by hospital wholly owned or operated physician practices will be included in the payment window.  Payments for the physician portion of these services will be added to the three-day payment window at the facility rate.  The technical portion of such services will be bundled with the inpatient stay.  If the non-diagnostic services are unrelated to the inpatient hospital claims, that is, the pre-admission, non-diagnostic services are clinically distinct or independent from the reason for the beneficiary’s inpatient admission, the unrelated outpatient hospital, non-diagnostic services are covered by Medicare Part B, and the wholly owned or wholly operated entity shall include the technical portion of the services in their billing.  

Definition of Wholly Owned and Wholly Operated Entities

Wholly owned or wholly operated entities are defined in 42 CFR §412.2.  Specifically, §412.2 states:  “an entity is wholly owned by the hospital if the hospital is the sole owner of the entity.” Additionally, §412.2 provides “an entity is wholly operated by a hospital if the hospital has exclusive responsibility for conducting and overseeing the entity’s routine operations, regardless of whether the hospital also has policymaking authority over the entity.”

Implementation of the Three-Day Payment Window Policy in Wholly Owned or Wholly Operated Entities

Wholly owned or wholly operated entities are subject to the three-day payment window policy when they furnish pre-admission, diagnostic services to a patient who is later admitted as an inpatient on the same day or within the preceding three calendar days, or when they furnish pre-admission, non-diagnostic services to a patient, who is later admitted as an inpatient on the same day or within the preceding three calendar days for related medical care.

When an entity that is wholly owned or wholly operated by a hospital furnishes a service subject to the three-day window policy, Medicare will pay (i) only the professional component of services for payments that include a professional and technical split or (ii) at the facility rate for services that do not have a professional and technical split. Once the entity has received confirmation of a beneficiary’s inpatient admission from the admitting hospital, they shall, for services furnished during the three-day window, append a CMS payment modifier to all claim forms for diagnostic services and for those non-diagnostic services that have been identified as related to the inpatient stay. Physician non-diagnostic services that are unrelated to the hospital admission are not subject to the payment window and can be billed without the payment modifier.

Payment Methodology

CMS has established new payment modifier PD (diagnostic or related non-diagnostic item or service provided in a wholly owned or operated entity to a patient who is admitted as an inpatient within three days), and requires that the modifier be appended to the entity’s pre-admission diagnostic and admission-related non-diagnostic services, and reported with HCPCS/CPT codes, which are subject to the three-day payment window policy.  Wholly owned and wholly operated entities will need to hold their claims for three days if the patient was admitted to the hospital for a related service.  The wholly owned or wholly operated entity will need to manage their billing processes to ensure that they bill for their physician services appropriately when a related inpatient admission has occurred.  The hospital is responsible for notifying the entity of an inpatient admission for a patient who received services in a wholly owned or wholly operated entity within the three-day payment window prior to the inpatient stay.

The modifier is available for claims with dates of service on or after January 1, 2012, and entities may begin to coordinate their billing practices and claims processing procedures with their hospitals to ensure compliance with the three-day payment window policy no later than for claims received on or after July 1, 2012.

Reprinted with permission.  All rights reserved.